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
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
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
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
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
- 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
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
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
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