Post-Acquisition Due Diligence

The End of the Acquisition

His stomach sent him the signal first. A rumble, a mere rumble.

Harry’s was a large stomach, a faithful stomach. One he had lived with a long and trusted time, one he listened to when it spoke. Now it had. A rumble, a mere rumble. But he had heard.

Harry was Group President. One of five such GPs. His job was the purchase, care, and nurturing of acquisitions on behalf of his holding company, a conglomerate. He had held this job a long and trusted time, longer than he had his stomach, almost. He was good. He knew he was good.

He had just bought a company. He had put the word out, found a target company, performed an in-depth due diligence on it, negotiated the price, and finally bought it.

Now, three months later, looking at the early returns in the financials, his stomach was sending an alert. It was just a rumble, a mere rumble; it was, after all, still early days and there were many reasons for the numbers he was seeing. But he was listening.

The opportunity to buy had came originally, as most such opportunities came to him these days, by referral; he was well known; his company was well known. The opportunity did interest him.

So he looked. Looked deep and long with a due diligence that was thorough and careful. Looked into every aspect of the company that custom and tradition allowed – into the financials, into the operations. He used all the lists, tricks, and techniques prescribed by that most comprehensive authority on due diligence available, the Sahakian Due Diligence Checklists©.

But now he knew, with a moral certainty, that it was time to look much deeper, look into its soul. Look now, before whatever it was his stomach warned about grew worse. He would never have a better time to shape the future than right now. Anyway he had made it clear that it was his practice to look deeper once the acquisition was final – so no one need feel targeted or especially distrusted.

First he called his boss, the holding company CEO; he was confident in himself and in his judgment and felt no embarrassment. “We’ll be doing our Post-Acquisition Due Diligence© on the new company this week” was all he really said. There was no need for more; “Best do it now,” was a favorite expression of his boss.

He called his new subordinate, George, the CEO of the acquisition, and said, “It’s time.” Oh, he said it nicely, he said it with all that warm, helpful authority an acquiring executive can muster early in the relationship. With George he did not call it the Post-Acquisition Due Diligence©. No, he called it by its public name The New Beginnings Survey©.

Of course the thought was well received; he hardly had to twist an arm at all. Or mention that the survey would take the executives merely a half an hour or so, and they could break that up to five minutes twice a day if they liked. Anyway George would feel so much better knowing how his people felt after the natural trauma of the acquisition, wouldn’t he? Get it out and get it over with, Harry always said.

He could have it done next week? Well, OK, the week after. So the date was set.

So it began.

That very day, George received draft e-mails he could tailor and send to his managers and supervisors, announcing The New Beginnings Survey©. It was to help them put the past behind and hit the ground running in their new environment.

There were three such e-mails: one to foretell the coming of the survey, explain its importance and its anonymity, and to exhort them to reserve the time; the second, to ask the managers and supervisors to complete it within a week; and another to remind them to get it done and give them the inevitable day or so more that always seems to be required. The first e-mail went out that day to all the managers and supervisors.

The following day he had unit and department passwords and the email addresses they would be sent to. This had taken a mere thirty minutes, between the survey firm and his HR officer. Then he issued the second email. To be exact, his secretary did all the hard work in this, over his signature.

One week later, George was able to learn how many had responded, and in what units and departments. Then he issued the follow up reminder, his secretary made a few judicious calls to the tardier areas, and it was done.

The Survey

The survey had been substantial, but it took only thirty or forty minutes to respond in all – except for the inevitable few who invariably had to agonize.

There were really no excuses his people could use for not doing it. The survey was web based and could be accessed from anywhere. It could be answered a few questions or a few minutes at a time. All the questions were couched as statements so there was little need to agonize; the mind presented the answers almost automatically and the responses were made by clicking on a button.

It was also anonymous too – within units. When managers and supervisors accessed the web site they were asked for their unit password and then given a personal and private access number they could use to return to the questionnaire if they wished to interrupt their responses.

At the end, commentary could be added if desired. Many people did.

The survey covered some of the elements the pre-acquisition due diligence had covered; comparing the outside findings with the opinions of the management is always illuminating, for everyone concerned.

It also addressed about one hundred Drivers of Performance. These are the human and organizational factors that underlie, impel and drive the corporate behaviors that generate performance. They are the factors that set the innate trajectory of the company. The innate trajectory is that combination of corporate direction and momentum, independent of the economy and the competition, that predicts the long term future of the company – unless it is purposefully changed.

Two weeks from the day Harry had made his decision, the survey was concluded. All the senior team and 85% of all the others had responded. The survey responses were downloaded by the consultants and reviewed. Two days later, they were ready for a private and off-the-record heads-up with Harry.

He knew the drill; he had a LCD projector ready. In the quietness of the conference room he sat to see what kind of company and issues he had bought.

He knew he had due-diligenced well. But tradition and custom had not permitted him to ask them to take this survey; not a survey that asked questions like this. Now the results were in.

Each time he did this it was different, each company was different. Yet each time it was the same too. The act of being put up for sale, being due-diligenced, (to management that had become a four-letter word) and being bought would traumatize the company being sold. The longer the process, the greater and deeper would be the trauma. This one had gone on, it seemed.; he was now looking at the responses – the hurts, the feelings, and the fears.

He was also looking at deeper issues too, not triggered by the sale and acquisition. Things that had been in the psyche of the company for years. Things that even George had probably not been really conscious of, or had no names for, or thought could not be changed and so pushed from his mind and so endured.

But now, in conjunction with the traumas of the sale and the due diligence itself, those negative drivers were conspiring to tilt the trajectory of the company sharply downwards. From experience, long and bitter, Harry knew they would not change themselves. The issues would not go away by ignoring them or giving them more time. They would have to be exposed and diagnosed, taken out, looked at, and deplored. Actions would need to be specifically taken to change them to something better.

It would have to be done, Harry knew, by the company itself. He could not do it for them. Above all, it would have to be done now.

Mirror, Mirror, on the Wall!

It was not pornography. Well not exactly, though it did fascinate. It dealt with primal urge, potency, and creation. It did inspire guilt and caused each of them a kind of embarrassment that others should see them looking, like voyeurs.

No it was not a dirty picture. Just a sad one. But they sat there, fascinated, silent and embarrassed, just staring … Harry did not speak. He waited.

George said again: “But it can’t be that bad. We’re doing all right.” He had said it at least ten times that morning, but now it was empty of denial. Just a reflex. The silence stretched.

Eventually (it seemed forever in the silence, but it was just moments) George spoke again: “This must be who we are. God help us!” A sentiment that Harry shared. He had said much the same, but more colorfully, the week before as he studied the picture.

There it was, staring them in the face, writ large upon the wall. Not deniable now; for they had tried repeatedly that morning to deny it to themselves and they had failed.

They were an accident waiting to happen. Harry privately thought it was an accident already happening.

They were looking at their company as they had never seen it before. Never so completely nor so clearly. In the cold, implacable mirror of their own answers, of their own words. Naked it lay, without disguise. Everything on shameless view, not just the factors the due diligence had disclosed, but also its demons, its drives, its motivations – the very wellsprings of its performance – the secrets they had known, and secrets too they had not known.

They were an accident waiting to happen. They really were. They had said so.

George said again, a little plaintively and still puzzled: “But we’re making money, aren’t we?”

This time Harry responded: “Yes! But for how long? It hasn’t shown much yet, but the trend is down. One bad blow and we’re in trouble. We’re fragile in ways I hadn’t imagined.”

He lapsed into silence again, letting it work. And waited …

Then Alice spoke, their EVP of sales and, in her own quiet way, their bravest warrior. She simply said, “What are we going to do about it?”

So they decided, they took action.

Until just a few years ago, this in-depth illumination of the heart and soul of a company would never have been possible; the instruments did not exist. Nor did the techniques for transmuting the understanding gained into commitment or the knowledge gained into action exist.

The best that was available was the due diligence, the Pre-Acquisition due diligence. That of course had been done and done well. But the best due diligence possible could, by custom and tradition, look only at certain factors. And these factors account for only about 20% of the success of a company – which of course accounts for so many disappointments in merger and acquisition work.

The other 80% is driven by the Operating Dynamic of the company. That complex of human and organizational factors that drives expectations, behavior, and results.

With Harry nudging, George and his team did look deeply in and saw what was really there. They did so in time to cause change before the damage went further.

Such clear vision, such intense drive to action, usually happens only in extreme financial crisis. But here all that had been anticipated. A virtual crisis had been created from the responses to The New Beginnings Survey©. A crisis that was safe for all the managers, but one that caused enough pain to generate the energy and the visceral commitment to change.

Reality, however uncomfortable, had been faced. Distaste at what they saw was felt and voiced. A new and better way of being, of relating to each other, of running the company was conceived, written, and committed to. Action was taken, right in that room for many things, and committed to in writing, before bosses, peers and subordinates. Action plans were put in writing for the things that had to wait.

They had addressed a hundred of the factors that drive performance. George and his team had identified problems with more than thirty. Five of these turned out to be GUT issues. Issues that were sucking the energy, drive, and creativity out of the company and out of its managers. Issues that had been growing, unseen, in the soul of the company. Issues that had to be dealt with, not just intellectually, but emotionally. Not just by the managers individually, but by the team as a whole, by the very company itself.

The issues were dealt with, just that way. Dealt with by George the CEO, by Alice the EVP of Sales, by the others individually, by the team acting together – by the company.

The New Beginning

Then the day was done. Harry had his Post-Acquisition Due Diligence and knew now why his stomach had warned him. He patted it contentedly and in appreciation. In depth and in detail he had seen what was driving the company and each of its units. He had seen its strengths, he had seen its weaknesses. He had seen its innate trajectory – its very soul.

Of the things that needed fixing, many were already changed – simply by bringing them into the antiseptic sunlight of the session and making there, and documenting before all, the irreversible decisions that were needed. Others that would take more time were now detailed with specific action steps and dates that he would monitor and assist with. He held a copy in his hand.

The trajectory of the company, he knew, had changed.

The day was also done for George, his team, and his company. George, the team, and the company had had their New Beginning. They had seen in depth and in detail what was driving the company and each of its units. They had seen its strengths, had seen its weaknesses, its innate trajectory – its very soul.

Of the things that needed fixing, many were already changed; others that would take more time were now planned out and George would monitor progress and assist with them.

More than that, they were at peace – with Harry, with the holding company, with what was now expected of them. Best of all, they were committed, both individually and as a team to their future – and they were moving. The trajectory, they knew, had changed.