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.

Hate Being Right

About a year and a half ago, The Merger Verger commented on an acquisition by a company out of Australia, Ansell Limited (ASX: ANN). In the announcement of the deal CEO Magnus Nicolin was quoted as saying the following:

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

Bend Over, Mon Petit Shareholder
Bend Over, Mon Petit Shareholder

TMV’s posting was entitled “Short This Stock” because we know that a “wait and see” approach to acquisition integration is usually a prescription for disaster. So we got to wondering how that whole thing panned out for old Magnus.

Ansell’s recent financial reports have pretty vague and jolly things to say about their recent acquisitions (the largest of which was Comasec) and they don’t break out comparative data. But the point of the Merger Verger’s commentary was on the value of the stock and that picture is not so rosy. Over the 18 months since our posting, Ansell’s shares have risen approximately 10% while the S&P/ASX Health Care index has risen over 30%.

In other words, had you invested in the index instead of Ansell, you would have had less risk due to diversification and a gain three times greater.   (Yoo hoo, Magnus?)

One chart says it all (blue line = Ansell, black line = Health Care index; time horizon = 2 years to today):Ansell shares 2yr v Index

Lousy acquisition integration practices followed by lousy stock performance … cause and effect? Who knows? But an integration strategy as dumb as “wait and see” surely didn’t help.

Chuck the Checklist? Check!

Being a lifelong Forgetful Guy, I have constructed little organizational systems to protect myself from myself.  One of those systems is checklists.  So I believe in them.  To a point.

When doing acquisitions, checklists are absolutely critical because there is so much information from so many different dimensions to manage.  So we have due diligence checklists (legal and financial, about which there are 487 things to say … another time) and integration process (strategic) checklists.

All successful acquirers build a “book” of know-how, constructed in part from lessons learned on previous deals.  Out of that process comes a thorough integration checklist, cataloging hundreds, sometimes thousands of items requiring attention.

In that setting – amidst thousands of boxes to check – how is it possible to keep your eye on the ball (by which I mean the larger strategic intent of the deal)?  Focused on rows and rows of line items, how can you possibly perceive “trajectory creep” or the surprise rocketing in from some unseen nebula somewhere?

The danger of checklists – and the more “thorough” they are the greater the danger – is that they become substitutes for thinking.

As an integration leader, I insist that my teams pause occasionally to chuck their check lists.  In those pauses I ask them questions designed to pull them from their pages to the big picture:

  • What are we missing here?  What are we not thinking of?
  • What could be different here from any of the other integrations we’ve done in the past?
  • How would or could we respond if [fill in all kinds of blanks here]?
  • What isn’t working so well?
  • What expected problem has not materialized (yet)?

and probably the most important of all:

  • Why did we do this deal in the first place and what else should we be doing or thinking about to make sure we accomplish that end?

Every now and again, chuck the checklist and think for yourself.

Check.

Complexity Squared: Merging United and Continental

There was a very interesting article in a recent edition of Bloomberg Businessweek on the integration of United and Continental.  Makes me glad I’m not in the airline industry (although the deal is a “must follow” for anyone interested in acquisition integration).
 
 
The article doesn’t offer a ton of technical or integration know-how but several interesting points emerge:
 

Top business leaders are beginning to understand that integrating acquisitions can take enormous amounts of time.  Jeff Smisek, President and CEO of the new United is quoted as saying the integration will take “several years.”  How many name brand CEOs have that vision on the complexities and subtleties of an integration process?  Bravo, Jeff.

I wonder is the CO/UA situation made even more difficult by two companies that are endeavoring to create a truly merged entity rather than the usual whale/Jonah strategy.  Does a merger of equals require more tact? (That would seem obvious.) More time? (To be done right, I would say, “yes.”)  Different angles or solutions?  (Now there’s an interesting question indeed.  Any thoughts out there?)

The author of the article makes a very salient point about culture but unfortunately buries it deep in the body of the article:

“Before the new United can feel like one entity to consumers, it has to feel like one entity to its employees.  Ultimately, that’s the most difficult part of a merger – combining cultures.”

Smisek himself reinforces that concern on the company’s website:

“The biggest challenge is making sure that we develop the right culture of the combined companies.”

For fun and profit, I offer a few of the issues that the two companies grappled with in their integration process (all serious but some more amusing than others):

  • Differing labor contracts (duh)
  • Differing premium service classes
  • Onboard coffee service (this was apparently a gigantic issues)
  • Inconsistent flight tracking software algorithms
  • Differing customer loyalty systems
  • Plane boarding procedures
  • Staff uniforms

“God is in the details,” said architect Ludwig Mies van der Rohe.

The final solution for the New United’s logo is almost too simple, too obvious. But it does imply the practical, uncomplicated (?) union of two companies … at least to the outside observer!

The other interesting element of the article was the highlighting of the 2005 merger between America West and US Airways as the airline merger nightmare of all time.  I am impressed that someone at CO or UA seems to have read the playbook from that deal and smartly done the opposite.

Historical note: the perhaps colossus of all merger screw-ups was also a transportation deal: the 1968 merger of the Pennsylvania and New York Central railroads.  Is there something about transportation deals that we should be looking at?

Question: What other industries are prone to this kind of high complexity in merging?  Is it the high technology component? The extraordinary requirement for exactitude and safety? The intense demands of highly stressed consumers?  Something else?  Experiences please ….

In a future posting we will take a look at United’s web site and how it is dealing with the integration process.  Stay tuned.

Manufacturing Due Diligence

The Deal magazine is currently running a moderately interesting article on things to look out for when doing due diligence at a manufacturing company.  The article doesn’t break a lot of new ground but it does offer some succinct points on things not to forget when looking at an industrial target.

Link here: http://www.thedeal.com/magazine/ID/044712/commentary/pe-and-manufacturing-deals-close-inspection-is-key.php

 

Why an Acquisition Integration Blog?

I had scanned the internet and blogland as much as I cared to and still not found any kind of satisfactory forum for dialogue on the subject of acquisition integration.  Even the integration-related groups on LinkedIn seemed pretty inactive or, well, sort of lame. So I launched The Merger Verger to lay some observations and opinions out there and to see who and what came back.

This is important stuff folks; a lot of shareholder value hangs in the balance.

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