Chapter: New York

There are many valid reasons to do an acquisition. It is vital to be clear about the business rationale for an acquisition, and that rationale must guide all the next steps. Due diligence and price negotiations are very important steps in the process, the integration of the two companies is critical and hence the focus of this article.  

Prepare Carefully and Act Quickly

Integrating two companies is complex because it can impact every aspect of both companies including management, sales, finance, legal, human resources, technology, purchasing, and facilities. Hence, you must carefully define the purpose of the acquisition (the “why”), the qualitative goals and quantitative metrics that will indicate the success of the acquisition (the “what”), and the steps needed to achieve these goals (the “how”), and the people/roles that will be needed to implement these steps (the “who”). This becomes your integration plan.

Make sure that the executive and team responsible for the acquisition are involved in the due diligence process so that they can raise potential operational issues in the evaluation of the target company and be adequately informed to develop their integration plan. Get feedback and buy-in on this plan by discussing it internally amongst the board of directors, senior management, and the people in the various departments responsible for implementing the plan.  

Once the deal closes be ready to hit the ground running. The first 3 months are the make-or-break period for the success of the integration.  

It is ALL About People – Communicate and Build Trust

People are the most important asset of any organization and the single biggest determinant of the company’s success. When an acquisition is announced, people of both organizations, and especially those in the acquired company, will be nervous about their job security. Others may be politicking for promotions or control. It is important to align them on the work ahead by communicating clearly and honestly. This is also a time when there could be high turnover, and you do not want to lose good talent with experience and domain knowledge if you can help it. A focus on the employees of both companies will pay big dividends.

Your role as the leader is to build trust, instil the right values and create a higher purpose. If you do that well, you will have a strongly aligned, high-performance organisation that will rise to any challenge and win!

It is customary and necessary to send out a welcome letter to the employees of the acquired company. However, this is quite impersonal and does not, by itself, build an adequate relationship. I would urge you to go further. Visit the acquired company in person and take the time to meet rank-and-file people beyond top management. Tour the facilities, stop to shake hands and chat with line workers about their jobs and ideas on how to improve them. Being accessible builds trust. At the very least host a companywide electronic town hall with plenty of time for a question-and-answer session.   

Treat the people of the acquired company with the respect they deserve. Guard against a natural bias in the acquiring company to think that they are in some way superior and should be calling the shots.

When you meet with the employees of the acquired company be open, honest, and upfront. Share your goals and plans appropriately, explain your rationale and solicit feedback.  

Keep an eye out for talent with a good attitude. Giving people in the acquired company equal opportunities will increase your talent level and will motivate the acquired staff.

The Customer is King

Customers of the acquired company will be concerned about the goals and objectives of the new company, whether the products they know and love will be supported or discontinued, whether the people they have worked with for years will still be around, and whether pricing will remain stable and which new and improved products or services they may be offered. Larger clients should be visited by their account manager supported by a sales executive from the acquiring company, and all clients must be communicated with immediately and repeatedly.

These customer meetings are a great opportunity to introduce the acquiring company and its products as part of an upsell program. Equally important is to listen carefully to the customer to understand their needs, desires, and frustrations. If any complaints or requests are raised, ensure that they are addressed promptly.

Achieving Objectives

The purpose of the integration must be to accelerate the vision for the acquisition. This is where clear qualitative and quantitative goals are essential. Qualitative goals should ensure that the core objective for the acquisition is top of mind while providing flexibility in how that objective may be achieved. It also reduces the risk of focusing too much on the quantitative goals to the detriment of the core mission. Quantitative goals fill the need to have measurable metrics for determining the success of the acquisition and can be divided between each department for their area of responsibility.

Set ambitious and achievable goals, provide the resources to achieve those goals, then get out of the way. Naturally, you will need regular updates and course corrections may be necessary, but an empowered team will perform miracles.

Maintain Flexibility

Be prepared for surprises, good and bad. Positive surprises could include finding some superstar talent, a revolutionary product in development or efficiencies in production. Negative surprises could include underinvestment in plant and equipment, people being paid below prevailing wages, wage discrimination and unfavourable contracts or leases. Your plans need to be flexible so that you can respond to opportunities and issues.  

Fixing long-standing issues is a great way to gain credibility and boost morale with a big payback. For example, a company we acquired had no air conditioning. The employees had been requesting it for years, but the previous owners had turned down those requests. We hadn’t budgeted for it, but we installed it anyway and at a considerable expense. The staff took that as a sign of our commitment to them and their operation and overnight we had an engaged and loyal staff. 

Understand What the Target Company has to Offer 

Purchasing companies are often derided, with some justification, as value destroyers. This is because they approach an acquisition with the mindset of rapidly integrating it into the acquiring company’s practices and business models without considering the merits of the acquired company. Do not be in too much of a rush to integrate business models or even culture. The target company is often younger with a strong culture, can-do attitude, the ability to make decisions more quickly, and to innovate faster. Take steps to maintain the strong points of this culture, even incorporating some of it in the parent company. Younger companies often form to take advantage of the antiquated business practices of their more established counterparts. Be open to their business model. Understand it fully rather than simply discarding it for that of the purchasing company. 

Synergies

Most acquisitions can realise cost savings in management, administration and many other areas such as data centres, office space, software licenses, redundant roles, etc. Move quickly on these. Take the pain, put it behind you and move on. Shareholders and the board of directors may not reward you for attaining your synergy goals, but they will certainly punish you severely for not doing so.  

Integrating Back-office Systems

Some acquisitions are planned to operate as a separate division with only light integration. In fact, it is not unusual for divisions of companies to be bought and sold again in a few years. If the intent is to operate the target company as an independent entity, the level of integration can be much smaller.

On the other hand, if the intent is to integrate the company into the parent organisation to operate as a single company, it is imperative to do the hard, time-consuming, and expensive work of integrating all the systems including back-office systems. If this is deferred, chances are that it will not be done later. On the other hand, if done well, it will pay off in greater efficiency and lower ongoing costs.

In Conclusion

Every stage of the acquisition process is important, and the post-acquisition integration phase is critical. It is tempting to focus on synergy goals, and they are important, but they are one-time savings. Caring for your employees, customers, and other stakeholders are critical to your long-term success which is why I led with that at length. And building trust is critical to dealing with people. 

A good acquisition strategy well executed can be a great way to build and grow fast. Good luck with your acquisitions.