| Navigating the Post-Acquisition Minefield
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| By Mark L. Feldman, Managing Partner, The Five Frogs Group
Doing the deal is no longer an art. It's a drill - an exercise in financial and legal gymnastics. Over the last half-century, the same basic variables has been twisted and stretched through hundreds, perhaps thousands, of permutations. A wealth of deal making knowledge has been created. Yet most deals still fail to create value for shareholders. Why? The real art of the deal lies in the post-merger transition - and there are so few artists. Once the deal is closed, time is critical. There are more questions than answers and there is more to do than time allows. Energy is diverted to internal matters, distraction rises and margins suffer. Speed of execution is critical. Agility is essential. There is no value in prolonging the post-deal transition. No one doubts this. Everyone charged with managing a post-deal transition wants to get it done and get back to business. The only thing between them and success is the post-acquisition minefield. Navigating the minefield can be tricky unless you know how to identify the mines. Entering the minefield Landmine #1: Obsessive list making Within days of announcing a deal, the lords of infrastructure begin compiling encyclopedic lists of things to do. With each day more detail is added, making the master list becomes a mind-numbing, morale destroying, ego deflating, knee -buckling, litany of things to do. It consumes 50 typed pages backed by 10 linear feet of Gantt charts - and seldom is a revenue driver to be found. List-driven transitions are prolonged transitions. They dilute resources, undercapitalize important initiatives and sub-optimize results. By giving administrative detail and gratuitous cost cutting the same priority as revenue drivers, market communications and other value drivers, they retard progress, frustrate the work force and misallocate resources. Disarming the mine: Savvy acquirers sort their lists on two criteria -- financial impact and probability of success. They identify the 20% of actions likely to drive 80% of the economic value with the highest probability of success. All available resources - time, management and capital -- are allocated first to these value-creating priorities. Landmine # 2: Creating a Planning Circus There is an old yachtsman's creed: "if you can't tie good knots tie a lot of them". Many acquirers apply this notion to transition teams. Out of some misguided sense of representational democracy, they form dozens of teams from both organizations to coordinate post-deal decisions and activities. The teams are organized into a Byzantine structure that superimposes its own mass, complexity and inertia on the transition. It slows progress and dilutes accountability. One regional bank merger, created a 17-member executive transition team. This group oversaw 24 functional teams, averaging nine managers per team, 48 sub-functional teams, averaging six managers per team, and eight cross-functional teams with 12 managers per team. After subtracting overlaps, nearly 500 hundred managers were involved. The teams met over a ten-month period after the deal. The opportunity cost, productivity losses, delays, and sheer expense of coordination escalated operating costs, stalled consolidation, and fueled confusion that resulted in a substantial loss of depositors. Disarming the Mine: There is a difference between an agile fleet of teams and a bloated armada. Experienced acquirers build transition teams around the value drivers - the 20% of actions likely to drive 80% of the value with the highest probability of success. Teams are kept small in size, as a team of over five people has difficulty simply scheduling its next meeting. Landmine # 3: Content-free Communications After the announcement of a deal, most communications tend to be 99% content free. They consist primarily of hype and promotion. Consequently, there are always more questions than answers. Imagine you have acquired 1,000 employees. Assume they feel relatively secure and spend only 30 minutes a day wondering, speculating and trading gossip with others about their future. That comes to 500 hours of lost productivity per day, 2,500 hours in a five-day week and 10,000 hours a month for every month you leave them uncertain. Communication is a stabilizer. It keeps people focused and energized rather than confused and perplexed. When your stakeholders -- employees, customers, suppliers and investors -- spend time worrying and wondering, they are not producing, buying, supplying or investing. Disarming the mine: Right thinking acquirers are concerned about employees, customers and business partners. They identify the needs, concerns and interests of all significant stakeholders. They build an aggressive communications plan around their findings. There are a few basic rules: Communicate as much as you know, as soon as you know it. Tell the truth and tell it first. Communicate consistent messages continuously, repetitively and through multiple channels. And, above all, no secrets, no surprises, no hype, no empty promises. Landmine # 4: Barnyard Behavior Barnyard chickens have a well-defined pecking order. Mix in another flock and you disrupt the pecking order. The rules governing which bird can peck another become uncertain. Feathers fly. In the chaos, some are wounded. Some die. The same thing happens in mergers and acquisitions. CEOs seldom experience more pressure to clarify authority, control, and reporting relationships than after a merger is announced. Succumbing to pressure, their decisions tend to favor form over function, titles over accountability and hierarchy over role clarity. The result often leads to barnyard behavior and an early preoccupation with a succession of organization charts. Unfortunately, new organization charts tend to disrupt productivity, as people struggle to interpret their meaning. Organization charts say more about authority, status, power, and turf than how information should flow and how decisions should be made. The barnyard behavior will continue, perhaps subtly, until roles and interrelationships are adequately clarified. Disarming the mine: Savvy acquirers understand that you can no more create role clarity by drawing an organization chart than you can make it rain by washing your car. Organization structure is about support for execution, not reporting lines and boxes. It should serve the business' basic value proposition. Before publishing an organization chart, each manager's impact on the value drivers should be defined. The definitions should include the results for which the manager will be accountable, which decisions will be owned, which will be shared, and what interdependencies are anticipated. Landmine # 5: Putting Turtles on Fence Posts Managers begin jockeying for position early. Executives either attempt to take care of their own people or bend over backwards to show impartiality, deploying as many of the acquired managers as possible. Rarely is there enough information to make informed decisions. The most common mistake is using selection decisions to balance horse-trading that began when the deal was struck. These misguided attempts at recruiting democracy end up resembling a quota system that violates every proclamation management ever made about the importance of merit. The result is too many people in jobs that can neither be defended nor comprehended. An old Chinese proverb says: "If you see a turtle on a fence post, you know someone put it there." Its relevance to modern day mergers and executive selection is apparent. To make matters worse, executive turtles increase the moron ratio. To cite an old Silicon Valley saying, "First-rate people hire first-rate people, second-rate people hire third-rate people, and third-rate people hire morons." Mistakes made at the top cascade down. Disarming the mine: Selection decisions based on a manager's apparent political capital and qualifications short-change both company performance and culture. By basing selection decisions on what candidates "will do," that is their track record, operating style and culture fit, you can avoid putting turtles on fence posts. Landmine # 6: Rewarding Wrong Things Picture a casino in Las Vegas. Hundreds of gamblers stand at hundreds of slot machines, but the average person is interested in only the machine he is playing. Why? He has a stake in that machine. If you want him to care about how all the machines are paying off, give him a stake in the casino. Managers in mergers are no different. The bigger their stake, the more they will to stretch to capture the rewards. Unfortunately, the architects of post-deal incentive plans are often preoccupied with funding formulas, eligibility criteria, delivery mechanisms, tax treatments, and administrative requirements. The plans become Rube Goldberg-like contraptions that defy logic, frustrate managers, and confuse participants. They lose sight of the real objective: energize and focus behavior. Disarming the mine: By aligning incentives with value drivers in the deal, you can forge an intense focus on shareholder value creation and stimulate enthusiasm. Landmine # 7: Applying the Wrong Solutions Mergers and acquisitions have a lot of moving parts. To manage the process, most companies use home grown or purchased project management tools, file sharing applications and spreadsheet templates. Unfortunately, these tools are best suited for prescribed and static projects, not processes. Project management tools, for example, impose a hierarchical structure to coordinate activities and allocate resources across organizational units. Communication flows down from the project office to the executing units and up from the units to the project office. Cross-functional issues are resolved at the top, creating a bottleneck. Response time is slow. Recovery is slower. Resources are misallocated. Productivity is reduced. Freedom to act is constrained. Ability to adapt is diminished. Creativity is eliminated. There is no focus on value. File sharing and spreadsheet applications fail to remedy these shortfalls. None of these tool sets is capable of real-time response to and regulation of fast moving, complex and fluid tasks like post-deal integration. Disarming the mine: Air traffic controllers utilize a distributed control system to avoid mid-air complications. The system supports intelligent coordination from multiple locations simultaneously, real-time collaborative control and timely action. Applying distributed control to mergers and acquisitions can produce the same benefits. Moreover, it can stimulate resourcefulness, keep value-based priorities visible and fuel rapid adaptation and increase freedom to act in the best interests of the combined company. Savvy acquirers are deploying this emerging solution to power post-deal transitions and manage the complexities of integration. Landmine # 8: Believing that Culture is About Values Despite overwhelming evidence that cultural differences must be addressed swiftly, many executives believe it is possible to merge cultures gradually, through contact and interaction. Ironically, social scientists of the 1950s referred to this discredited strategy as the "contagion approach" -- analogous to the spread of infection. You cannot merge two cultures by waving a banner proclaiming common vision and values. Cultural change doesn't come from newsletters, logos, screen savers, or success posters. It's not about hype, promotion, mantras, or prayers. Integrating two cultures requires integrating two idiosyncratic behavior sets. Disarming the mine: To integrate the cultures, you must induce people to try new behaviors by clearly communicating and reinforcing those behaviors you want to be most characteristic of your company. This can be done by deploying role models in highly visible management positions and recognizing and rewarding the behaviors whenever they are observed. This is the fastest and most certain way of forging a new culture. In the End A PricewaterhouseCoopers survey once asked acquirers what they would do differently, if they could do their deals over again. 89% said they would have executed the post-deal transition more quickly. Perhaps the greatest danger is simply moving too slowly to capture the value in the deal. Mark L. Feldman is author of the business best seller, "Five Frogs on a Log: a CEO's Field Guide to Accelerating the Transition in Mergers, Acquisitions and Gut-Wrenching Change." Formerly a Partner and Global Practice Leader of PricewaterhouseCoopers' mergers and acquisitions consulting business, Mark is currently the Managing Partner of Five Frogs Group and an advisor to MAE Software, a provider of collaborative control solutions for mergers and acquisitions. To contact Mark, e-mail: mark@fivefrogs.com. |
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