The fees charged by lawyers and investment bankers suggest that handling M&A transactions is among the most skilled and taxing jobs in the world. Most CFOs know different: the hard work continues well after the completion of a deal.
"Buying a business isn't difficult - integrating it successfully absolutely is," says Neal Roberts, CFO at IRIS Software and a seasoned hand at M&A. "The more effort you put into planning the integration before you've bought the business and involving people on the other side, the bigger benefits you get."
That message about good planning echoes some of the advice Siva Shankar, corporate finance director at property group SEGRO, passed on about keeping a steady head during the deal.
"The integration plan is crucial," he explains. "Synergies have to be thought through clearly - and any assumptions in them have to be underwritten by those who will be responsible for delivering them, not just by the deal team. As a sense check, we get people outside the immediate 'deal team' - but who are operationally very familiar with the business - to try to pull the integration assumptions apart. It's better to do that before the deal than 18 months later."
So assuming you've got a sound plan and the deal has been successfully negotiated, what happens next? What's the secret to turning your well thought-through acquisition strategy into a new, larger, better business?"
Apply a template
CFOs who have been involved in a number of acquisitions develop what's almost a template for the post-deal period. "We put massive effort into our integration planning here - partly because we've done it so many times," says Roberts. "We have a rigorously tested approach that includes a 90 and 180 day plan. They include responsibilities by department, so everybody knows exactly what they're going to have to do before we sign on the dotted line."
Acquisition Solutions founder Chris Brown has turned this kind of template into a business, selling toolkits to help managers deliver orderly integrations. So he knows in most situations, there's a checklist you ought to have ready.
"Look for cash - by consolidating bank accounts, closing loss-making activities and laying off redundant staff as fast as possible," he says. "Then look at the supply chain - you're almost certainly going to find volume discounts from suppliers, for example. Don't wait to lay off redundant professional services firms, like auditors and ad agencies. Tackle HQ costs early - including issues like non-executive directors."
That's just a taster - the list is long. But the other thing he advises is using a dashboard that tracks the key indicators you used to justify the deal in the first place - some monitored daily, others monthly - as well as standard KPIs that will tell you if the day-to-day business is suffering from neglect during integration.
Communication is vital
Everyone working in both companies has a sense of unease when an acquisition goes through. There are bound to be redundant positions - from the board to the post-room - and there's sure to be a clash of cultures, policies and processes. So what you say, and how quickly you say it, is critical.
"A major issue is that target management assume the worst will happen - especially if it's a hostile deal - which means the talent often leaves," says David Young, CEO of sell-side adviser Shield Partners. "Then a common problem is that the old dividing lines remain in place post-deal - it's very rare for a genuinely new culture to emerge."
It means clear messages need to go out fast - before people act out of misapprehension. "It's vital not to send out any mixed messages," says Shankar. "You sometimes hear the phrase 'a merger of equals' carelessly used. But in almost all cases, one company is taking over the other. So you have to manage expectations - and saying you're 'equals' just means you'll have frustrated expectations and friction as people try to assert their 'equal' rights."
If aspects of the integration do not go in line with the plan, you need to be open and honest, he adds. "Otherwise, people in the organisation will think senior management are either blind to what's happening - or they are being disingenuous. Integration efforts require unremitting commitment from the people involved, and that is partly inspired by unremittingly transparent communication."
Ideally, of course, things will be going right. "Post-deal, quick wins are vital - and it's all about getting control of the business fast," says Brown. You need to tell your story while staff are open to a fresh narrative. "People expect things to change when their business has been acquired, so you can take lots of decisions in the immediate aftermath. But if things cool off, they'll start to think everything's carrying on as normal - and that makes it much harder to change later."
Look for best in class
Although almost all M&A deals are takeovers, applying a blunt "victor/vanquished" mindset could be a huge mistake. "It's dangerous to assume that the company doing the taking-over is the better business," says Shankar. "It might have the size and financial firepower to make an acquisition, but operationally it could have much to learn from the target. So don't simply replace their managers with your own. Be aware of your own strengths and weaknesses; where the target has better people or operational models, you need to make dispassionate choices about getting best-in-class people and practices."
It's another area where Roberts agrees. IRIS bought Computer Software Group in 2007 and nearly doubled the size of the business. The CFO was clear about seeking the cream of both companies' talent and systems for the new entity.
"Our first step was to look at the people - and there were some good people in CSG who are still with us," he says. "That was important. Employees needed to be able to see it wasn't just IRIS people, there was a mix in the financial management team - and we'd chosen on merit."
Shankar adds one other warning about that process: be proactive. "Voluntary redundancy programmes are a bad idea," he says. "You could inadvertently lose some of the better people who are most capable of finding suitable work elsewhere. So make a hard calculation about your people needs, then make a job-by-job transparent and fair decision on who is best placed to do the jobs in the combined entity - pick the best wherever they come from."
It's not the only thing you need to be proactive about. Allowing any aspect of the business or the merger plan to drift can be fatal. That's why having dedicated resources to do the job - not just leaving it to the different department heads to sort out - is important.
"You need someone experienced in this kind of work," says Shankar. "In some organisations, a hot-shot rising star, not yet experienced in leading integrations, may be given the high risk role of managing a complex integration role 'to prove themselves'. That's much too big a bet to make when there is so much value generation and reputational capital riding on an effectively delivered integration! Use someone who's done it well before and knows all the pitfalls through personal experience.
"And there is always the option about very selectively bringing in high quality, experienced interim project managers," he adds. "They have no vested interests beyond making the integration work, so they can be better at reliably reporting the true rate of progress on the integration."
Roberts has a word of warning on that last point. "We did try using an external party to help with one integration project," he says. "But our lesson from that was probably that you're better off getting on and doing it yourself. The important thing is inspiring your team to rise to the challenge."
The tricks of the trade
Every CFO who's been through an integration process will have their own stories to tell about pinch points and quick wins. It's well worth networking with people in your institute, local chamber or supply chain who have been through it and can pass on useful insights. Shankar and Roberts are no exception.
Roberts recalls how CSG had a number of different financials systems in place, which promised to make keeping a lid on the accounts during the integration phase a nightmare. "So we put in Hyperion across the enlarged group," he says. "That's my key reporting tool - and as long as we could consolidate on a uniform basis at the top, we could just suck up the data and it didn't matter what the source was. That gave us time to swap out the various systems in the CSG businesses - then put in either Exchequer, one of our packages, or Chorus."
For Shankar, one of the key dangers of integration is a business taking its eye off the ball. "One big fear I always have is that customers will get neglected," he explains. "So we usually intensify external and internal customer surveying to focus people's minds, reminding them that they remain a priority. When attention is being drawn from the front-line to help manage integration, you need to keep your other eye on the main business."
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