Transition During Transaction

When making a large acquisition the CEO, CFO and integration team leader (and one or more related divisional heads) should make a firm commitment to see the integration process through. If you are part of the decision to take the risk, you owe it to the organization to stick around and make the return.

Escher Sky and Water IThat means:

  1. Making a commitment (either as a personal ethic or a stated intention) of at least one year post-closing; and
  2. Living by that commitment despite other opportunities that might arise.

Whose job is it to ensure that these commitments are made? The CEO, plain and simple.

The Merger Verger Recommends:

As the transaction team is closing in on making a formal bid for a transformational acquisition, the CEO should call together the appropriate parties and say something like this:

We are about to make an investment that could open great new doors for our company but will also expose it to great new risk. Success will require the dedication, focus and time of this team in particular. For that reason, I am making a pledge to you and to the company that I will not seek or accept other opportunities that might come my way for at least one year following closing. I ask each of you to do the same. If we can’t make that pledge than we need to rethink our intentions for this deal.

Look, the Merger Verger understands that there is no loyalty any more and even that “shit happens.” But at the outset of a deal that has the potential to create or destroy enormous amounts of shareholder value, double-checking that there is an emotional (if not legal) commitment to standing by the risk should be a cornerstone of any “GO” decision.Cornerstone Setting
About the Art

  • Top: Sky and Water I by M.C. Escher, woodcut, 1938 (17.25″ x 17.25″)
  • Bottom: Laying the cornerstone of the main Boston Public Library building in Copley Square, Charles Follen McKim architect, 1895
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It Takes Grit to Make Deals Work

There is a very interesting discussion going on in academic circles on the role that “grit” plays in success.  University of Pennsylvania psychology professor (and MacArthur Fellow), Angela Lee Duckworth, believes that grit often trumps talent or intelligence when it comes to achieving success.  The Merger Verger follows that view and believes that Grit in Actionher observations on the hiring process could well be included in deal-doing on two fronts:

  • the staffing of an integration team, and
  • the assessment of employees to keep or let go in an acquisition.

Duckworth defines “grit” as (1) the tendency to sustain interest in and effort toward long-term goals and (2) and self-control; the voluntary regulation of behavioral, emotional, and attentional impulses.  Needless to say, in a long-term project like acquisition integration, grit is an essential foundation stone.

If you want to take a quick “grit quiz” to test your own mettle click here.

Further Reading/Viewing:

Short This Stock

So the word from Oz should have the shorts doing chest bumps.  This from Magnus Nicolin, CEO of Ansell Limited (ASX: ANN), which acquired Comasec SAS:

The overall integration process will be a gradual one as we take time to get to know the Comasec business.

It would appear that even the most basic tenets of acquisition integration have not reached Australia yet.

In case The Merger Verger’s reading is unclear let me offer the shareholders of Ansell a translation:

We are standing by to flush our (your) investment in Comasec down the toilet using a process that will be slow but certain.

In fact, let me go a step further and offer a letter that you might want to send to the noble Magnus, your CEO:

Dear Mag:

We are glad that you are seeking ways to grow our investment in Ansell Limited. But I, for one, am distressed by what I read about your approach to the Comasec acquisition.  Please be aware that your future at my company will depend in large part on how well that approach plays out.

Now, me, I’m just a humble shareholder so don’t expect me to know as much as you about doing acquisitions but it occurs to me that a “gradual” process can’t be that smart. I mean, if you just sort of amble along doesn’t that merely postpone the time that any benefit might inure to us as shareholders? And wouldn’t it extend the time that we are paying for duplicated overhead? And increase the likelihood of employee defections?  And open us to competitor shenanigans? I’m just dubious.  Is “slow and steady” really the right approach here?

And another thing: you say you want some time to “get to know” the acquired company.  (Uhm … how do I say this nicely?)  I would have hoped you’d get to know the company before you spent my money to acquire it.  By the time the transaction closed, I would have expected you to know not only the target but also what you were going to do with it. You see what I’m saying?

Listen, anybody can make an acquisition.  I don’t pay you to do that; I pay you to make them work.  “Mañana” cannot possibly be the right approach.

So get on with. Today.

Cordially,

Cher Holder

The Merger Verger’s Take:

An “overall integration process [that is] a gradual one” is a failure waiting to happen.  A true short’s delight.

Timing Is Pretty Much Everything

The Merger Verger is so confused.  People seem to be slow to get things started and then in a hurry to get them over with.  What’s up with that? I mean, if we were talking about eating Brussels sprouts, I could understand but if you’re in the merger business you must think it’s fun, right?  Why not dig in? Why not see it through?

When I hear CXOs talk about acquisition integration, they mention two timing events, almost exclusively: closing day and Day 100.  That’s it.  Life begins at time zero and ends 100 days later.  Hell, a stinkbug lasts longer than that.

Here’s the message:

Acquisition integration should start sooner than you think. It should start in the strategy stage.  Particularly when strategic expansion – either in the vertical or horizontal direction – is the plan, attention to integration issues can clear the pathway, identify issues to address in advance and sharpen the analytical assumptions that underpin your bidding.  If you are starting to think about an acquistion, start to think about integration.

Query to Readers: I would welcome stories from readers who have been involved in integration activities that by virtue of starting either early or late have given rise to potentially useful observations.

Acquisition integration should continue longer than you think.  There is no finish line, no “The End,” no graduation, not even any fat lady singing in acquisition integration.  Even the attainment of financial metrics does not necessarily mean “it’s over.”

Remember the adage “old habits die hard?”  Old habits prevent the adoption of change.  And acquisition integration is about the effective management of change towards a specific strategic intent.

Let me see if I can explain this timing thing in a way that even the visual learners will understand.  If we view old habits as including practices, perceptions, expectations and the like, we might ask “to whom does the adage apply?”  Let’s look:Hmmm.  That’s odd.  It seems to apply to everyone.

So, Sherlock, what does that suggest to integration professionals (and the executives that depend upon them) about the timing of the integration process?

Wait, I answered that question already … about a dozen lines ago:  “Acquisition integration should continue longer than you think.”

This does not mean “forever” but nor does it mean in full accord with the best-laid plans.  Not everything will go according to plan and most of the unforeseens will require more time than less.  So be prepared for that in advance.  In fact, any good integration plan will prescribe how to handle key delays.

  • CXOs: challenge your people but be open to change.  It is better to be flexible and successful than rigid, punctual and errant.
  • Integration Directors: lay out clear plans and expectations, monitor them closely and prepare in advance for any project’s inevitable sloths.   And keep your CXOs informed, good or bad.

Unfortunately, despite years of working on deals and a zillion conversations with people about them, I cannot offer a formula for when an integration process can be declared complete.  It is just different with every deal, with every team, with every set of circumstances.  So your focus should be on the objectives, not on the clock.

This is a vital topic and we’ll likely come back to it again often but let me close here with another …

Query to Readers: What are the metrics you follow (using the term “metrics” both numerically and subjectively) to assess/sense when an integration process is nearing completion?  What lessons can you share from those times when the numerical metrics had been achieved but softer goals had not?

Too Many Balls (and Too Few Planes) in the Air

So the woes are official.  United’s recent announcement of its 2Q 2012 quarterly results confirmed what virtually every customer already knew: the merger of United and Continental is still causing problems.  It’s not quite Jeffrey Smisek with his Head on Fire but it’s not good either.

Even the most carefully orchestrated integrations can hit clear air turbulence, particularly when merging entities as complicated as airlines.  Let’s look at some of the issues in hopes of finding a little preventive medicine.  (Ahem … American, are you out there?)

The UAL announcement noted the following problems:

  • Cut-over to a single reservation system has been more complex than anticipated.
  • Changes to the frequent flier policies have wrought confusion and pissed off customers, particularly at the most-active flier levels.
  • On-time arrival metrics have slumped.
  • Flight cancellations have increased.
  • Baggage handling mishaps have increased.
  • Spare plane inventory was cut back only to have to be rebuilt.
  • Reservation transaction times have increased, making them more expensive and more frustrating to customers.
  • Changes to the company’s revenue accounting system have led to revenue adjustments.

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The “Lesser Whole Theory” Bites United

Poor United Airlines has been receiving a lot of unfavorable press recently, mostly about unhappy premier customers. The Merger Verger has discussed the integration process with United at some length over the last few months and basically believes that they have done a good job at planning for and executing the merger.

So what’s going wrong? And are there lessons for the rest of us in this turbulence?

Much has been written about the “need for speed” in the integration process over the last few years. (Who hasn’t read the Band-Aid metaphor a zillion times?) But does that need apply to all aspects of the integration process or is it better used selectively? Clearly in the case of financial controls and employee (and management) reshuffling, speed counts.  But United’s problems seem to center around customer service issues, in particular the combined software systems and the training on those systems.  That suggests three possible explanations:

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