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Business Acquisition, Integration & Operation … and Communication 101: A Primer
by Larry Fox and Rob Hilliard

 
   
 
   

Merger and acquisition activity appears to be on the rise again. Having survived recession, war and a divisive presidential election, many companies are now focusing on growth. Specifically, companies have "re-trenched" during the last few years, saved some cash and are now poised to spend money to grow through acquisition.

Though it can seem exciting and sexy, growth by acquisition is filled with booby traps and mine fields - particularly for the inexperienced. Simply having the money to buy a company does not, in itself, assure success. Securing capital for an acquisition from your bank or through investors does not assure success. Receiving blessings from your most important customers does not assure success. Obtaining the enthusiastic support of your management team does not assure success.

The three factors that have the greatest impact on the success or failure of a business acquisition are: (1) having a thorough understanding of the acquisition target prior to closing the transaction, so there are no surprises after the ink is dry on the deal; (2) developing a post-closing plan that offers maximum potential to effectively integrate, operate and grow the acquired company in a post-transaction environment, and (3) executing that post-closing plan, which can be difficult and is highly dependent on how employees of the acquired company not only accept but proactively participate in the plan.

What one key ingredient determines the level of success of all three factors...? Communication!

Knowing the Target

Efficiency of the acquisition process is integral to developing an effective plan because it can have a direct bearing on the thoroughness and quality of due diligence that the buyer needs to perform.

The perspective you and other decision makers have regarding the amount of acquisition-associated risk you're taking on will determine, to a large degree, how much you'll pay for the target company. How well do you understand what you're buying and why? Are you receiving the due-diligence information from the seller that you requested in a timely, complete and organized manner? Or are you just receiving summary data that doesn't tell the whole story? Have you had an opportunity to talk with key managers who understand the day-to-day operations? Or are you receiving information from someone who is one step removed from the daily business?

The communication process by which an orderly flow of critical information takes place, agreed upon at the outset by both the buyer's and seller's transaction teams, is of paramount importance. The more you understand about the acquisition target, the greater your chance of understanding the risks associated with completing the deal.

If the transaction team of either the buyer or seller has a dedicated M&A professional as their daily contact, the transaction process tends to run more smoothly. On the other hand, should a company be pursuing an acquisition target and not have the necessary professional experience resident within the organization, it is critical for management to retain outside advisors who understand their business as well as the M&A environment, and can adequately represent management through this tedious and difficult process. An experienced professional has been through it before, and knows how to anticipate issues and react to situations instinctively.

Developing the Plan: A Culture Consistent with Objectives

Whether it's a merger of equals or one company acquiring another, operational effectiveness and financial success can hinge upon the ability of the post-transaction management team to understand both corporate cultures, and to integrate the employees of each company into an emerging culture that fits with the objectives underlying the transaction.

Of course, smart acquirers don't try to force-fit one culture into another. In this regard, large company transactions can be particularly difficult due to the sheer size and complexity of the merging organizations.

But small company transactions can be challenging as well. For example, there may exist within the acquired business a deeply rooted, "family-oriented" culture that has been nurtured over the course of two or more generations of ownership. Having been acquired by a larger and more formal company, the smaller informal business may now be required to adhere to more structured policies, procedures and demands. Additional reporting requirements to new ownership introduce another layer of "work" for which employees of the acquired company may not see value. The transition can be time-consuming and, at times, frustrating. But skilled acquirers understand how to manage these environments in-transition.

It's quite possible, depending on the objectives of the acquisition, that the acquired company retains its pre-deal culture. The "integration" or "synergies" that take place after the deal is closed may be possible even if the day-to-day cultures of the companies don't change. Again, it's particularly important to know why a company has been acquired to ensure that areas driving culture receive appropriate attention.

Executing the Plan: Communication & Corporate Marriage

In the M&A arena, it's not only about getting the deal done and not overpaying, but also about the ability to successfully integrate and run a company after the closing. With respect to the latter, how the acquiring company handles communication of its post-transaction plan - both informal and formal - is key.

Consider the analogy of two people beginning married life. With the best plans and intentions, two individuals enter into a marriage having evaluated each other's personalities, strong points and shortcomings, and believing they're compatible. But neither is absolutely sure about how smoothly the household will run until they actually experience married life. Marriage success, particularly after the honeymoon period, is a product of hard work, maintaining an open dialogue and adjustments by both parties.

In the post-honeymoon period, spouses typically end up falling into their own roles. Ongoing communication and trial and error are part of the successful formula, as each party may take on responsibilities or act a certain way and not be willing to give in - at least, initially. Eventually, compromises are reached or one party relents, many times in exchange for something else that party feels is of particular importance.

The same dynamics are at work in the aftermath of a corporate acquisition. Whose system do you use? Where do you locate a particular resource? What vendors should you retain? The best answers emerge when each party listens to the other and contributes to a decision that's in the best interests of the whole rather than one party or the other.

Guidelines for Effective Acquisition Communication

The following six points can help guide you through the initial phases of communicating with a recently acquired company:

  • Establish consistent, formal vehicles for communicating with various layers of management.

    In the immediate aftermath of a merger or acquisition, there will be a desire for a flow of information that can only be satisfied by consistent, formal communication. If this need is not addressed, a communication vacuum will materialize and then be quickly filled by second- and third-hand information, half-truths and, ultimately, pure speculation.

    Set up a communication program that includes a comprehensive list of employee groups within the purchasing and selling organizations; a very specific timetable for addressing each group; the tools and forums to be used in communicating to each group; and deadlines for developing content and producing material, along with the individuals charged with accomplishing these tasks.

  • Communicate to all employees the expectations for working in the post-transaction environment.

    All too often, communication is directed at employees of the newly acquired company while employees of the acquiring company are left in the dark. This one-sided approach ignores the basic fact that organizations operating in a post-transaction phase present changing landscapes for both companies, and employees on both sides of the deal will have to work together. They should, therefore, hear the same message from management so that all employees are "singing from the same prayer book."

    Long-range goals and short-term objectives - some of which may have undergone varying degrees of modification and others of which are likely to remain unchanged - need to be communicated to employees throughout the organization.

    Ideally, members of a company's executive team should initially address all employees directly. On a follow-up basis, however, managers should be reinforcing the "big picture" painted by senior officials while focusing on specific actions expected of employees under their supervision.

    To ensure these follow-up communications are consistent in their message and reflect top management's expectations for employee action, a company-wide communication plan should be in place. Overall controls on the type and content of the communications could range from providing managers with content outlines and/or key talking points, to centralized development of the presentation material itself.

  • Listen to the views and concerns of all employees regarding work in the "new" environment.

    If the health of a group of blood cells is ignored, they're liable to become infected with a disease. If not addressed in a timely manner, the disease soon spreads and the entire body is infected. Performance is hampered and the overall health of the body is affected.

    A company's employees are like a body's blood cells. If a group of employees is ignored, they become disenchanted and almost assuredly will spread their negativism to other workers with whom they have contact. If not addressed, this "bad blood" will eventually have an impact on other departments and/or locations. Eventually, the overall performance of the company declines.

    The ability of an organization's top management to keep listening to what employees are saying, either directly through standard communication channels or implied by certain behavior, is perhaps the single most difficult task to undertake on a consistent basis. Why?... Because the pace of corporate life and the myriad responsibilities of senior executives and mid-level managers make it all too easy to shuffle to the middle of the "to do" list what might initially appear to be small or trivial issues that have the potential, over time, to mushroom into much larger concerns.

    Implicit in listening is management's commitment to a relationship with employees based on mutual respect - management respect for employees' opinions and employee respect for management's ability to make thoughtful decisions.

    "Listening" is not to be confused with simply "hearing" what employees are saying. Hearing is more about paying lip service to mission statements, which invariably contain some version of corporate rhetoric pertaining to respect for employees. Listening means acting on what employees are saying - even if such action does not result in a policy change and involves little more than a better effort to explain why the organization needs to maintain the status quo.

    In small companies, the task of listening is made easier because of relatively few employees, a simpler organizational matrix, or a single location. Often, the CEO and possibly one or two other key members of the executive team can cover the landscape.

    Of course, listening is an increasing challenge as the company work force increases, the org chart sprouts boxes and reporting lines, and a single location is replaced by satellite operations in far-flung geographies. What had been the province of top management now becomes a two-pronged effort, where senior leadership must impress upon its second-tier managers the importance of maintaining sharp, "24/7" ears within their areas of responsibility.

  • Supplement formal communication vehicles with informal strategies designed to eliminate the impression that top management operates in an "ivory tower."

    Conversely, promote the notion that top management operates in a "glass house," permitting senior executives to clearly see what's going on with daily operations while enabling employees to clearly see that management is not losing sight of what's happening day to day.

    One CEO, the head of a small, publicly traded company in the sports & entertainment industry, wanted to improve event-day staff performance. The staff, consisting of employees from the facility management company as well as the professional sports franchise that leased the facility, was not working seamlessly. As a result, customers were suffering from less-than-satisfactory service.

    First, the CEO circulated a memorandum to all event-day staff, providing specific guidelines for a more customer-friendly team. This written communication was followed by a "Do's and Don'ts" presentation in cartoon format.

    What finally yielded material results, however, was the CEO's decision to spend one day each week on a different job at the sports complex, working side by side with event-day employees. During a two-month stretch, he was an usher, ticket taker, parking attendant, concession-stand food & beverage handler, children's party room host and public address announcer. He even worked one late-evening shift with the post-event clean-up detail.

    During his time with employees, he not only listened to their concerns, but took time to explain top management's perspective on customer service and to give them a "big picture" view of things.

    By his interactions with employees, the CEO was able to bring across his customer-service message in a way that no memorandum or group presentation ever could. In the process, he also learned through first-hand experience the nuances of several key jobs, which placed him in a far better position to make further improvements to event-day operations. Finally, working "in the trenches" with event-day staff resulted in a much closer and open relationship between management and employees, and fostered greater employee loyalty to the organization as well as a customer-focused environment.

  • Maintain these two-way avenues of communication on a long-term basis, because cultural integration does not take place only in the first month post-closing, but over a period of years.

    We could no less expect cultural integration of two merged companies to take place over a period of months than we could expect Iraq to become a true democracy months after its first election legally binds its various cultures to one democratic government. Emergence of an Iraqi deomocracy will take years of that country's disparate peoples working hard to find the proper mix of commonality and individualism.

    Similarly, a newly formed company, the product of a legally binding merger or acquisition, must work hard at finding a blend of corporate practices and procedures - from operations, sales and R&D to finance, management systems and the use of capital and human resources - that best suits its planned goals and objectives.

  • Have the open-mindedness and flexibility to make adjustments to those culture(s) (read: employee practices) in place prior to the transaction, when such adjustments are seen to improve post-transaction performance, thereby giving employees a sense of contributing to the future of the new company.

    If corporate leaders can gain a thorough understanding of an acquisition target prior to closing a transaction … if they can develop a post-closing plan that offers maximum potential to effectively integrate, operate and grow the acquired company in a post-transaction environment … and if employees are made an integral part of the planning and implementation sides of the equation, the financial rewards can be staggering.

    But one need look no further than recent M&A history, which is littered with documented failures. A recent study sponsored by Johnston Smith International indicated that, from the 1960s through the 1990s, one-third of all acquired companies were sold off within five years; as much as 90 percent never lived up to financial expectations, and nearly half of the transactions destroyed shareholder wealth.

It is a given, then, that bringing long-term success to a "new" company born of a merger or acquisition "is hard work" (to quote from recent presidential politics). But, in reality, the hard work boils down to (1) doing the homework, (2) developing an effective post-transaction plan, (3) executing that plan while involving all employees, and (4) applying to the process effective and ongoing, two-way communication between management and employees.

In the base case, the task seems well within the scope of today's business leaders.


     
   
     
   

The Authors

 

Larry Fox is president of Cruiser Ventures, LLC, a Bloomfield Hills, MI-based management consulting firm specializing in strategic planning, corporate transaction and other finance-related services for small and middle-market companies. Working out of Chicago and then the Detroit metropolitan region, Mr. Fox has more than 20 years of diverse business experience, ranging from buying or selling more than 20 businesses around the world valued at over $500 million, to inventing and managing the creation of an infant soothing device which generated sales of over $2 million after licensing the product to Playskool/Hasbro.

Rob Hilliard is principal of Manhattan-on-Rouge Communications, LLC, a metro-Detroit consulting firm providing marketing communications, media relations, issues management and opinion and market research services across business sectors. For more than 25 years Mr. Hilliard has served as a corporate executive and counselor, first in New York City and then in southeastern Michigan, advising senior managers on a host of communication, marketing and management issues of importance to their businesses and the constituencies they serve.

     
   
     
   
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Copyright 2005 by Larry Fox & Rob Hilliard. All rights reserved.

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