What follows is an old but nonetheless very useful tale of integration woe:
- In the late 1990s, US auto parts company Federal-Mogul acquired UK auto parts company T&N. (So far so good)
- Acquirer decided to integrate the target’s aftermarket sales function into its own, resident in the United States. (OK, maybe)
- Federal-Mogul discovered that its ordering system couldn’t recognize non-US telephone numbers. (Uh oh)
Now the specifics of this mess could not happen with today’s CRM systems but the message is still relevant: God is in the details.
It’s hard for The Merger Verger to determine from the available facts whence cometh a screw-up like this one but I see two possibilities: either (i) there was insufficient focus on the operational aspects of due diligence or (ii) there was reasonable data collection but insufficient analysis and findings based on that data.
A fair measure of due diligence is about gathering information. But much of it is about using information.
If you are an infrequent acquirer or new to the deal business, this is an absolutely critical lesson for you to take in.
Some due diligence is about making sure you have information that you, the new owner of a business, should have. An example would be papers relating to the target’s corporate formation. You get the data; you put it in a file; you forget about it. (This kind of information will come from the due diligence checklist supplied by your lawyers.)
Other due diligence is about confirming that you are getting what you pay for (and the corollary, that you are not overpaying for it). An example, here, would be a statement of aging accounts receivable. If the target has a third of its receivable stretching back to Moses’ time, you might want to rethink the price you’re paying. (This kind of information will come from the due diligence checklist supplied by your accountants.)
Lawyers and accountants provide essential guidance in the development of due diligence checklists. But much of the information derived from those lists has limited use or limited life to its usefulness.
Not so with the next form of deal information.
The final form of due diligence is about getting ready to own the new business. This is the area where Federal Mogul fell down. You must understand how the business works down to some very nitty gritty details and then apply those findings to shape how you are going to integrate the business.
In Federal Mogul’s case, they should have realized that the customer-facing requirements of the target could not be handled by their own existing CRM system. Knowing that, they could have avoided making an uninformed misstep in the integration process or reversed the move by integrating their own customer interface with the apparently more flexible system that T&N used.
Can their customer database handle non-US telephone numbers? It seems like an impossibly small item to worry about. But sometimes it’s not.
In words of two syllables or less:
Make sure you get the operational information necessary to know how to integrate your acquisition.
Once you have gathered the information, use it.
And … before you make big integration decisions, consider doing further due diligence. Closing day is not the end of information gathering … not by any stretch.
Acting quickly is generally the right approach when integrating two businesses. But don’t ignore the asterisk: act quickly … on good information.
About the Art:
The coining of the phrase “God is in the details” is attributed to German/American architect Ludwig Mies Van De Rohe. Despite having built some fairly impressive buildings including New York’s Seagram Building, Mies is perhaps best known for his Barcelona Chair (top), which he designed in 1929.
May your own work stand such a test of time.