CEOs: Ask These Questions First

Some while ago Forbes published a very useful little piece aimed at making sure companies were asking the right questions before they embarked on a new acquisition.  It’s short and very pithy … so worth bringing back to people’s attention.  The article is entitled Why Deals Fail and What You Can Do About It.  Highly recommended.

Cadillac Ranch BW

About the Art: Cadillac Ranch, conceived and constructed by Ant Farm, 1974.

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A Galaxy of Acquired Brands

Entering the new year, The Merger Verger is watching one particular transaction that has good strategic intent and sensible (bordering on downright modest) synergy goals written between the lines of the announcement hyperbole: Newell Rubbermaid’s (NWL.N) purchase of Jarden Corporation (JAH.N) for cash and stock.

Each of these companies has an enormous stable of consumer brands (on which more below); together the list is mind boggling. And company each has grown over the years through acquisitions. It is tempting to quibble (or even judge harshly) that Jarden acquired more like a financial buyer (using acquisitions to build critical mass) whereas Newell Rubbermaid acquired more like a strategic buyer. But that would be splitting hairs.

NR-J strategic rationale

Both companies know how to do deals. And both companies know how to integrate them into a larger whole. So the deal could have gone either way. In fact, Jarden founder Martin Franklin said, “If we had the multiple and we had the market cap, we’d be the buyer.” But from an integration perspective, The Merger Verger sees it as good news that the “strategic” buyer has come out the winner. (It’s also good news that no one is bandying about that hideous old saw “merger of equals.”) All tolled, the chances of this deal achieving its strategic intent would seem good.

newell-brands-logo-slider_article_full

 

The number of consumer brands represented by the combined entity in this deal (to be rechristened “Newell Brands”) is way too big to list but it is very impressive indeed. The key names are listed in the deal press announcement, available by clicking here.

Picking through the Year-End Commentaries

Those snappy thinkers at McKinsey wrapped up 2015 with a nice piece entitled “M&A 2015: New Highs, and a New Tone.” There are some interesting observations that warrant highlighting.

First, let’s give credit. The full McKinsey & Co. article can be found by clicking here.

Examining share price data in the days surrounding the initial announcement of deals, McKinsey found that investors in 2015 McK Ex 2continued to be neutral on large deals (as regards the buyer’s shares), which is a step up from years past when they were decidedly negative.

But The Merger Verger wants to know why and we’re given two very promising explanations:

  1. Companies are being smarter about large deals, more and more looking at them from the angle of revenue growth than cost reduction. It
    always requires an investment to reduce costs but investors appear to be saying that paying multiples over market to get those reductions perhaps isn’t the best approach.
  2. Not only are companies smarter about why to do deals but they are getting smarter about how to do them as well, as this quote from the article states quite succinctly:

“Companies may also be getting better at integration and capturing deal synergies. In our observation, the discipline, professionalism, and capabilities around integration have certainly improved.”

This warms the cockles of, you know, The Merger Verger’s heart and … under the theory of better late than never we offer the following illustration to support this post.

too soon old_570xn-333619476

(Rumor has it that the foregoing is Dutch wisdom… more advanced thinking from the folks that brought us the nutmeg, tulip manias, legal dope and the Kröller-Müller Museum.)

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)

99.9% Perfect

A statistic was bandied about years ago that in managing the Apollo moon launch projects, if NASA had 99.9% of its systems working perfectly, there were still 15,837 things (or some such number) going wrong.

Apollo-11-Infographic

Merde! That’s a lot of room for error.

On that score The Merger Verger sees little difference between the moon launch and the integration of an acquisition … lots and lots of room for things to go wrong.

It’s one reason why the Verger finds checklists both empowering and debilitating. Deals contain enormous amounts of wee activities that contribute to the whole of a success. Lose track of them and your spaceship veers slowly off into outer darkness.

BUT … focus too sharply on your checklist and you have no vision on changing circumstances that may obviate certain listed activities and necessitate other new ones.

Good project managers run with checklists but they do not live by them. They think. They envision. They project. They call audibles. And are ready to do so at any time.

 

The Merger Verger Issues a Challenge:

While we’re on the subject of moon launches and whatnot, TMV would like some computer historian or NASA retiree to provide us with a comparison of the computing processing power available to NASA during, say, the Apollo 11 moon landing and that contained in the laptop from which this post is written.

FCPA and the Integration Process

The Merger Verger is no lawyer so we don’t like to get too deep into the legal aspects of integration (hoping – in part – to set an example for lawyers not to get too deep into the operational aspects of integration) but once in a while we come across an article that draws attention to a topic that doesn’t get much attention in integration circles. So we highlight it.

One came to our attention recently on the risks associated with acquiring a company that does not comply fully with the Foreign Corrupt Practices Act. Goodyear did just such a thing with fairly expensive results after the dust settled and the non-compliance came to light.

Banditos

The article lays out three core areas of attention:

  • pre-closing due diligence including a distinct anti-corruption compliance component,
  • post-closing audits to unearth things that might have escaped the rush of pre-closing investigation, and
  • post-closing integration practices including training, financial controls, and internal communications systems.

Quick article. Worth the read if only to goodyear zeppelin-crash-pictures-1make sure you’re attuned to the issues so you can get help when the circumstance arises.

Read the full article from Michael Volkov of the Volkov Law Group by clicking HERE.

 

Walking in Whose Shoes

Integrating Benefit Plans for Real Benefit

One place where the difference between running businesses and merger them shows up in magnified form is in the combining of two disparate benefit plans.

The Merger Verger was discussing this issue recently with a mid-level executive in a service business that was being acquired. This contact was not a part of the integration team but was concerned for the impact of benefit changes on her own staff. She had recently been informed of the intended changes in a manner that was informative but not at all helpful.

She felt that the integration team – most of them senior staffers – had not Lobbwalked in the shoes of their subordinates’ subordinates (and below) and that both the changes and the manner in which they were dictated reflected little thought. She foresaw disgruntlement arising from lower levels that would be challenges to the integration and to mid-level managers … challenges that senior managers might never get a real feel for. All because no one walked in the shoes of those being affected.

Example 1: If you, the buyer, have a vacation policy that is less generous than that of the target, forcing conformance with your plan may seem like the most efficient way to go but to the target’s staff, it represents a pay cut. Yes, that’s right: a pay cut. They now have to work a day or a week or whatever more for the same amount of money; that’s a pay cut.

Example 2: If you recast your benefit plans to have some give and some take, do not presume that what you – as a senior executive – think is a “good trade” will be received as such down lower into your staffing layers. In the case above, there was a decrement in paid-leave days but an increase in 401(k) coverage and match. That might be a reasonable swap for higher-paid executives for whom investment accounts matter but people counting their days off or without spare cash are not likely to see it that way.

LouboutinThink your new staffers will be happy about that? Think they’ll drink the new Kool-Aid with enthusiasm and gusto? Wrong. They will gripe, take reduced initiative, spread bad Karma and generally prove that the kind of “savings” you were hoping to achieve are frequently not worth it. So think again.

Lesson: What a buyer might think of as an efficient answer to an integration issue may not be for reasons that relate to people’s responses way on down the food chain. Before you foist some new program on the target’s people, take off your Lobbs or your Louboutins and walk in their shoes for a while.

A Loss of the Real Kind

Sad news over the weekend. Longtime acquisition advisor and fellow New Jerseyan, Phil Clement, died in a private plane crash. Phil was the founder and head of Cathedral Consulting, an acquisition consulting firm, and was highly alert to the issues of integration. He and The Merger Verger had been trying to get together last week for a relaxed sitdown near the beach but an emergency on my end precluded that. And then the crash swept everything away.

We will miss Phil’s energy, his deep deal experience and his confident willingness to bring others’ integration expertise to the benefit of Cathedral’s clients.

Good life, Phil. Relax. We’ll take it from here.

St._Patrick's_Cathedral_(New_York)_1

For more info on Phil and Cathedral click here: Cathedral Consulting Group, LLC

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.

You Said WHAT??

So last time we were looking at a target company that was in the middle of announcing to its staff that it had agreed to be sold (All Quiet on the Working Front). The Merger Verger was lucky enough to have “fly on the wall” privileges for two conference calls that were part of the internal announcement process. We continue our previous commentary with one more Simple observation.

The second call was focused on the target’s sales team, giving insight into the acquirer and food for dealing with potential customer concerns about the transfer of ownership. Again, all mostly Acquisition Integration 101 stuff. But as the call neared its end, one of the participants asked, “what are we not supposed to tell our customers?”Robert Osborn cartoon

OMG … what a fantastic question!! And all too often overlooked (as it was in this case).

It’s not The Merger Verger’s intention to list the million and one possible issues for non-disclosure (or even just one, for that matter), but we do point out that guiding staff – particularly those who are to be ambassadors of change to such outside stakeholders as customers or suppliers – about what they should not discuss is just as important as guiding them on what they should say. A simple “that information is not being disclosed [for competitive reasons, or whatever]” is usually enough to do the trick without sounding evasive or unhelpful. If, for some reason, that is not enough for the stakeholder, make sure your team knows what it is permitted to say and – also Keep Mumimportant – where the concerned party can go either for more help or for a more senior (and therefore presumably more satisfactory) explanation of the non-disclosure.

So when you are developing your core FAQs to prepare insiders for their conversations with outsiders, make sure you pause to include potential questions that they should not be answering and what they should be saying or doing instead.

Simple enough. But don’t be so focused on perfecting your outgoing messages that you overlook it.

Happy Harry

About the Art: It’s all 1940s.  Top: a US Navy propaganda cartoon by artist/satirist Robert Osborn encouraging civilians to keep their mouths shut.  Middle: a British equivalent by artist Gerald Lacoste (1942). Bottom: the very definition of “better to say nothing.” Harry S. Truman holds up the morning edition of the Chicago Daily Tribune announcing – erroneously – that he had been beaten by Thomas Dewey in the race for president. November 3, 1948.