Integration = Change Management

Wouldn’t it be great if understanding this one factor – that integrating two businesses is at its core about managing change – were enough to make deals work?  Sadly it’s not.  Turns out that most change endeavors fail too, as illustrated in this fairly informative little video from the folks at Strategy + Business.

Click here for the video, just under five minutes long.

Change … Lost – without a map.

1929 Standard (PA)

About the Art:

1929 Road map of Pennsylvania (illustrator unknown), distributed by Standard Oil Company of Pennsylvania, a subsidiary of Standard Oil Company of New Jersey, itself one of the 34 companies that devolved from the breakup of the Standard Oil trust. Standard Oil of NJ marketed gasoline under the Esso brand, which became Exxon in the 1970s. (Author’s collection)

You’re Kidding, Right? Book 1

At a recent conference on acquisition integration, a speaker was addressing the importance of corporate culture. This is a good thing; in a world of bankers and lawyers (or – worse yet – bankers or lawyers turned corporate executives), softer stuff like culture has gotten short shrift for years … to the detriment of a lot of otherwise good deals.

So The Merger Verger was listening. Until the speaker came out with this:

“In a true merger, no one culture should win.”

 Early example of a

Early example of a “true merger”

What? Are you trying to make me barf?

The explanation was that adopting one culture over another would leave the losers feeling like (OMG!) losers.

Dammit; give me a minute while I clean off my shoes.

There are lots of meaty issues to consider here but let’s focus on two.

Issue #1 – There is no such thing as a “true merger” or “merger of equals.” That ship sailed a long time ago and anyone who tells you otherwise is either trying to sell you something or has lost all conscious contact with history.  (See: Worst Integration Deal of 2014)

So do not plan your cultural integration (or any other part for that matter) around a striving for universal equality. Your wings will melt and you will fall into the sea.

Issue #2 – Just because an aspect of your deal – culture, for example – is “soft” doesn’t mean that it should be dealt with softly. We are business people, leaders. Our job is to choose between the good and the better. Not to do so is pure abdication.

Are you, for example, going to have a collaborative culture or a hierarchical one? You can’t have both. Maybe it’s the target’s culture that is more conducive to realizing the future objectives of the combined companies. The acquirer doesn’t always have to be the “winner.” But make the choice. Do it thoughtfully but decisively.

Then communicate what choice you have made and why it is the right one. Articulate it. Support it. Sell it. Then leave it to the team to decide whether they wish to mourn what was or jump on the shiny new bus with you.

Higher ROI … Guaranteed!

Ha! Did The Merger Verger get your attention with that one? No, sadly, we’re not offering 1-year CDs paying 1.66666%. This is an acquisition integration forum. We’re offering wisdom here, of the stunning variety.

This one of the stunningly simple variety:

The single-most important step that a company doing an acquisition can take to make it succeed is this:

Acknowledge that merging two companies is not the same as running two companies… or even running one bigger company. It’s just not.

If you accept that premise, you will approach the integration process with more awareness and more thoroughness and your chances of success will soar. Therein lies our guarantee.

But, lo, wise Merger Verger, why is this so?Mobilgas 1960 VietNam

Because running most companies is about maintaining and optimizing existing paradigms. Merging two companies is about changing them. Very different!

M&A execution (as distinct from deal making) is about CHANGE MANAGEMENT.

In that spirit, TMV draws your attention to a fairly useful online resource that outlines and describes 33 different techniques for creating change in an organization. For each technique, the reader is given an overview, an example of the technique in action and a discussion (background, psychology, pitfalls, etc.) and links to more detail. Simple. Good. Check it out.

Change Techniques, courtesy of

About the Art: Today’s illustration is the cover of a 1960 Mobil road map of Viet Nam.

Yo ho, Investment Bankers

Those were heady days, The Merger Verger recalls, when you could make a fee by helping a client acquire a company and then make another fee a few Closing Dinneryears later helping the client sell the same company after the acquisition failed.

So why should an investment banker give a rat’s ass about acquisition integration?

Because those days are over. Clients are smarter. And even smart investment bankers are smarter.  So let’s think about the M&A advisory business and acquisition integration.

  • If an investment bank really understands the issues associated with integrating a target company, it can help its clients make more successful acquisitions.
  • If an investment bank understands the challenges associated with integration, it can prepare smarter and more accurate pro forma numbers, which will lead to a greater likelihood of a client hitting its ROI threshold.
  • If an investment bank is aware of the operational aspects of the companies it’s selling, it will create more informative (and more accurate) selling memoranda, which should increase the selling price.
  • If an investment bank is conscious of the issues of integration, it can better develop and focus its list of buyer prospects in an exclusive sale assignment, which also should increase the selling price.
  • If an investment bank is realistic about the expected difficulties of an integration process, it will prevent its clients from knowingly overpaying for a target in a bidding war. (I know, that is a ridiculous thing for The Merger Verger to suggest but it could happen, couldn’t it? Maybe? Once? Just for fun? No? Damn.)

If an investment bank truly wants to build the reputation of providing its M&A clients with a service that adds actual value and is competitively unique, it should be thinking about the process of acquisition integration and about the needs of the client after the deal has closed.  There’s a lot to learn here – and much of it not easily quantifiable – but the payoff should be high.

Query: Is there an investment bank out there that would be willing to attempt to capture these benefits by building its own integration expertise, providing ongoing client service through the whole of the purchase and integration life cycle? Wouldn’t that keep one nicely “in bed” with the client and also create a track record that was superior not just by number of deals done but by amount of value created? Or is that too long term of an investment for an investment bank to make?

About the art: The pirate sketch is by Disney artist Marc Davis (1913-2000) for the Pirates of the Caribbean films. Davis did artwork for such famous Disney films as Peter Pan, Sleeping Beauty and 101 Dalmatians. A collection of his work is on exhibit now through November 4, 2014 at the Walt Disney Family Museum.

Under-Appreciated and Overlooked

Here’s an interesting quote from a blog by Mike Rogers, who runs an M&A boutique called The Revenue Group.  He lays out the five essential steps in building a successful acquisition.  Consider his point #5, short and sweet:

Integration – This is the most under-appreciated and overlooked task in the entire process and it requires a specific skill set.  It’s easy to lose focus once the deal closes as each of the execs goes back to their normal jobs but it’s important to assign a program manager to stay attentive to the details.  That’s the best way to ensure that the deal produces the expected ROI.

I don’t think the Merger Verger cFocus!!ould have made it any clearer himself.

For Mike’s original blog posting click here.

EMC Acquisitions in a Nutshell

There’s a very good – smart, succinct, helpful – posting on the corporate blog of technology company and active acquirer, EMC Corporation, written by Matt Olton, the company’s SVP of Corporate Development.  The piece (entitled “Explaining EMC’s Success in M&A” and available here) is short and necessarily high-level but still has some juicy tidbits on how EMC acquires companies and how they manage the integration process.  Check it out.

The Merger Verger’s favorite snippet is:

A large part of EMC’s hard-earned reputation as a preferred acquirer comes from EMC’s company-wide commitment to post-acquisition success.

Enjoy (and hurry back).

Too Smart for their Own Good?

What is the difference between a carny barker and an academician with a mission?

Well, really, basically, nothing.

Both are out to sell you something and will use any degree of intimidation to do it.

So The Merger Verger had a good chuckle the other day in running across an academic treatise on M&A that basically slammed academic treatises on M&A.  It came from the Journal of Financial Transformation published by the Capco Institute in the UK.  Author Shahin Shojia’s paper looked at the “practical benefits” to be found in academic studies of M&A and found them absent.

While such studies on M&A do, according to Shojia, “provide a reasonable aggregate of what the markets are doing, they form no basis whatsoever upon which judgments are made about acquisitions or mergers and they certainly are of little or no value when it comes to the strategic issues that are essential” to managing the M&A process.

Whew!  That’s nasty! 

But you’ve got to appreciate a straight shooter, particularly from academia. 

I will leave you with this quote:

If one buys the argument that with the exception of exceptionally bad acquisitions, it is close to impossible to determine the success of [a transaction beforehand], and most managers acknowledge this, then the only issue that is of importance is the management of the post-acquisition period.

Integration professionals take heart: strategists and deal types may get quoted in the press but we are the ones that create value.

CAT’s Ratings Still Rock

Fitch Ratings just affirmed its debt ratings on Caterpillar (NYSE:CAT) following its acquisition of Bucyrus.  See earlier TMV posting here and Fitch press release here (via Reuters).

In its press release, Fitch stated that its “previous concern about temporarily higher leverage [at CAT] following the Bucyrus acquisition has diminished.”  Despite the deal causing a material increase in debt exposure, the company’s year-end Debt-to-EBITDA ratio remained near the pre-acquisition levels due to strong cashflow at CAT.

The rating review spoke favorably about the strategic benefits of the Bucyrus deal:

Following the Bucyrus acquisition, CAT has the broadest product line in mining capital goods. In addition, the acquisition added substantial aftermarket revenue, and CAT’s global distribution network should further improve customer service and product support for the legacy Bucyrus business. Also, CAT expects to realize revenue and synergy benefits, including putting CAT engines in more of Bucyrus’ machines.

Is Big Riskier than Many?

The Wall Street Journal is reporting today that the flow of mega-mergers – deals over $1 billion – is at its lowest level in four years.  In board rooms across the country CEOs are shedding their bravado and doing smaller deals and bolt-ons and other things that can be more easily brought into the fold.  Risk is out.

But what really makes an acquisition risky?  Seems to me that from a practical perspective deals have two kinds of risk:

  • Investment risk → Assuming all goes according to plan, am I paying the right amount of money for this company?
  • Execution risk → Having paid the right amount, am I responding in a way that will enable me to achieve the intended objectives (and thus the returns)?

It is axiomatic that by reducing the amount of capital put at risk one reduces the overall investment risk.  (Even The Merger Verger can figure that out.)  But I can also figure out that smaller deal size generally means smaller upside potential. 

Continue reading

United … Today

Tonight at midnight, United Continental Holdings, Inc. (NYSE: UAL) completes what amounts to the third phase of the merger of airlines United and Continental, the phase that from a customer’s perspective means the real deal.  Phase 1 (my term, not theirs) was the legal combination, closed on October 1, 2010.  Phase 2 was the regulatory combination, effected more than a year later, on November 30, 2011, when the Federal Aviation Administration granted the Single Operating Certificate, enabling the companies to function as one airline.  Phase 3 begins today with the conversion to a single passenger service system, allowing the company to function as a seamless whole in the eyes of its customers: one airline, one set of routes and planes, one system of booking, one of flight tracking, one website, one loyalty program.  One United, united.

It has been exactly a year and a half since the legal merger took place.  I suspect that the integration team at UAL (and it’s a huge one, trust me) is heaving an enormous sigh of relief.  But is the integration process over?  Certainly not. 

So The Merger Verger is prompted to ask, “When should a company begin to dim the stage lights on a successful integration effort and bring up the lights on growing the newly enlarged entity?”  Some of this process happens naturally as the work effort thins and people are pulled off to other projects.  And it’s almost always a judgment call. But are there landmarks, signals, subtexts that can be monitored to suggest that an integration is complete?


Question: What are those signals and how do you use them?  How do they differ from deal to deal?  Are they different, say, between a consumer-oriented business and an industrial one?

Fun Flashback:

Future Post: The Merger Verger has spoken at length with the United people about their use of the United website as a tool for communications with stakeholders about the merger.  Watch for a future post on the subject in the next week or so.  

See a previous Merger Verger post on the United situation HERE