Main

March 03, 2009

The Art of M&A Integration

M&A activity is often biased toward closing the deal.  Company executives review strategic implications, define expected results and analyze financial projections.  Consultants and functional experts perform due diligence.  Brokers and bankers model business synergy and valuation.  The legal team works out contractual details.  When the deal finally closes, the vast majority of these people move on to their next challenge – leaving a business unit manager and corporate staff functions to actually engage with the new group, ensure functionality between business systems and, most importantly, deliver on the promised results.


There is often no formal integration process – this is typical of less sophisticated acquirers and acquisitions which claim no anticipated changes in a “merger of equals”.  Unfortunately, this initial independence is short lived as various corporate functions start expecting information in the format used by the acquiring company.  Next, these same well intentioned staffers expect compliance with corporate policies and procedures.  This will likely impact budget and hiring approvals and may extend to more critical business processes like customer terms or credit approval.  While all these changes seem reasonable to the various staff groups - the cumulative effect on the acquired company is at least a diversion of resources to deal with non-value added administrative tasks and at worst a direct violation of their expectations and trust.  The most destructive changes occur when organizational decisions and HR policies combine to impact reporting relationships, titles and compensation.   Coupled with the more benign administrative issues and an information vacuum – the intended synergies of the acquisition are quickly forgotten – replaced by uncertainty about levels of authority, long term job security and outright mistrust.


It is never wise to assume or communicate that business will continue as usual for the acquired company.  The reality is that many things will change with an acquisition and this needs to be communicated and planned well before the deal is signed.  The most critical elements of an effective integration plan include:

  • Common Objectives
  • Early Integration Planning
  • Resource Allocation
  • Fast Decision Making
  • Effective Communication
  • Strong Working Relationships
  • Expect Problems
     

For additional details on these elements, see my white paper at:


http://www.strat-edg.com/files/The_Art_of_M_A_Integration.pdf

Posted by rlkbeemer at 11:48 AM | | Comments (0) | TrackBacks (0)
Hosting by Yahoo!

December 31, 2008

Succeeding with Alliances and Joint Ventures

While meeting with a friend from a prior company, we found ourselves trying to figure out why a previously vibrant and productive joint venture relationship had turned sour.  We reviewed the history of this overseas JV – noting that the relationship had gone through at least 3 phases – a period of misunderstanding and frustration early on, a mid-life where communication and partnership were excellent, followed by a period of decaying relationships and loss of all the information sharing and joint product development enjoyed in phase 2.  I have since concluded that there were 4 essential elements that enabled the highly successful phase:

1.       Common Objectives – shared within both organizations.  In spite of ambiguity in the JV agreement, phase 2 started with acceptance of the JV as a fully capable partner rather than just an overseas distribution branch.  There was a common enemy and an opportunity to partner to share resources and ingenuity.


2.       Leadership - key operational executives working as partners.  Phase 2 was also marked by the appointment of a new JV president that recognized weaknesses in management – replacing key personnel with those who had US work or education experience.  The US parent also made adjustments in the leadership, training and recognition system to emphasize the need for partnership.


3.       Leverage Differences - in culture and skills to gain competitive advantage.  It became evident in phase 2 that the JV had unique skills in terms their customer relationships and automation design capability.  These were complemented by understanding of long term technology trends and good process and controls design in the US.


4.       Working Level Relationships - based on mutual respect and direct communication.  Peers within each company met face to face at least quarterly for both technical and social interaction.  Phase 2 was characterized by a very high degree of trust and shared information.


Upon reflection, it’s evident that the single most critical factor was leadership.  The relationship between operational managers, their vision of how the partnership benefited both companies and their investment of energy to make it work ensured that we could resolve any conflicting objectives, discover the synergies between groups and foster the peer to peer relationships. 


 You can read a white paper on this topic at:

http://www.strat-edg.com/files/Successful_Alliances_and_Joint_Ventures2.pdf

Posted by rlkbeemer at 09:24 AM | | Comments (0) | TrackBacks (0)
Hosting by Yahoo!

December 15, 2008

Beyond Due Diligence

It’s amazing how easily an acquiring company can be fooled when performing due diligence on an acquisition candidate.  I saw this first hand when I was asked to take over a $100M+ acquisition at a former company.  I had not taken part in the assessment but was now responsible for the turnaround.  The companies in question manufactured industrial subsystems that were integrated into semiconductor manufacturing tools by our customers.  There were two principle issues:


1.       During customer interviews, the target company was portrayed as having sustainable market share (true), good products (partially true) and an excellent reputation (false).  Within days of the acquisition taking place, the customers were all asking to meet with senior management in order to layout all the problems and demand our action plan.  An important point here is that the acquiring company had a superior record for product quality and customer responsiveness.  It was in the customer’s best interest to ensure that the acquisition took place and their feedback had been biased toward the positive.  Conclusion – always understand the biases and motivation of people interviewed – they can be expected to act in accordance with self-interest.


2.       During on-site reviews with the target company, R&D status of the next generation product was investigated.  The specifications, design concepts, business plan, prototypes and testing data all looked fine.  Months later when the product first shipped, the division CFO informed me that the product had a huge NEGATIVE margin.  Even better, a few months into use, the failures and re-design efforts began.  All in all, the product was an anchor on the newly acquired division - consuming resources from every function to stem the financial, customer relationship and operational bleeding.  Intelligent technologists missed warning signs during due diligence – including the absence of new but proven design methods for lower cost and higher reliability and extremely dense (hard to manufacture) layout.  The team also accepted the cost estimates at face value without validating quotes and assumptions.  Conclusion – when technology is a core element of the acquisition, be sure the team has the expertise, time and motivation to dig deeply.  This can’t be a two day side project and must include a cross section of experienced technical, operations and financial experts.  If the expertise isn’t available internally – bring in the right consultants.


In addition to these specific issues, there is an overwhelming tendency to see what you want to see.  In general, both parties want to make the deal happen and the investment banker certainly has only one agenda.  Don’t let this euphoria blind you to the reality.  Force the team to search for the exceptions, the inconsistent information and the objective evidence to support assumptions.  It pays to be a polite skeptic in order to establish the real value and integration challenges.

Posted by rlkbeemer at 11:36 AM | | Comments (0) | TrackBacks (0)
Hosting by Yahoo!