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8 Tips to Survive Merger Mania
Recently, the merger-and-acquisition market has been exceptionally active, especially in the Greater Philadelphia area. Dow and DuPont are negotiating a merger of the two chemical giants. Jefferson recently agreed to merge with Philadelphia University, Aria Health, and Abington Health. BB&T plans to merge with Susquehanna and National Penn banks. Even in retail, Carl Icahn outbid an earlier offer by Bridgestone to acquire Pep Boys.
Ultimately, the question is, what kind of “marriages” will these mergers/acquisitions be? Harmonious or discordant? Through a deal’s honeymoon phase, everyone talks about how the merger will be a boom for both companies and that all parties will prosper significantly from the start. Frequently, however, the first year passes and the headlines read: “Why did the merger of Company X and Y fail so badly when it appeared they had everything going for them?”
The answer for M&A challenges can often be summed up in the simple observation that the people involved in the deal did not focus properly on the people side of the transaction. Focusing on human capital and culture is a key element of success.
Here are eight tips to help any company improve the likelihood for M&A success:
1. Understand the impact of the acquisition on your business strategy. Does it meet your short- and long-term goals and financial objectives? Try not to let the emotion of the situation overtake you and your team. Sometimes, it’s valuable to take a step back in order to be objective at all times. Invite counsel and feedback from your board and outside advisors in order to be sure this acquisition is the right decision for your company. Before closing, you still have time to ask more questions or to say “no.” Once the deal is signed, it’s too late.
2. Determine the cultural fit of the new company. Culture defines who you are as a business. It defines what you stand for and how you want to be known by your customers, shareholders, vendors and employees. An important question to ask: “Is there a compatible cultural fit between the two organizations?” Many acquisitions fail because the fit isn’t right. You must spend the time understanding the pluses and minuses of both cultures. You must retain qualities from both cultures that have made each company a success. Ultimately, you’ll use these characteristics as the foundation of your recruitment and retention processes.
3. Appoint an integration team. Next to communications, this is the most important step in any acquisition. Be sure that both companies are represented on the team. In this way, a full range of issues surface regarding customers, products, financials and employees. Together, this team must finalize the business and financial objectives of the acquisition and be held accountable for the success or failure of the integration. Also, don’t forget you need an integration team leader who will be in charge and accountable for the success of the integration. But you must pick the right person. The leader of your integration team needs to be someone who has had a track record of success, has the time to focus on this integration and nothing else, knows how to make decisions, understands the importance of integration, and is a good communicator and facilitator.
One last thing is that you must also ensure that your integration team has the resources—either internal or external—to achieve their mission. Have you given them a clear directive, ample time to meet and complete the tasks, and access to everyone necessary?
4. Develop a communications strategy. Don’t underestimate the amount of communication that must be done when integrating two disparate organizations. Not only are employee and customer communications critical, but don’t forget to keep suppliers, your financial partners (accountants, bankers, et al.), and other key stakeholders up to speed on how the integration might affect them and how it fits into your overall business strategy.
I strongly suggest you establish a separate task force specifically for communicating the integration mission, the process, and your progress. You need to have continuous accurate and frequent communication to all of your audiences. Some methods of delivery include newsletters, hotlines, emails, and FAQs.
Make all managers and supervisors part of the communications process. Given that most employees will go directly to their immediate supervisor with questions, don’t forget to train your managers on the messages you want delivered.
5. Assess the people. Clearly you’re trying to ensure that you keep in your newly integrated organization the right people who are going to help you be successful and drive your business and company for the long-term. The first step in this process is to assess the human capital. This can be done either formally or informally, but nonetheless, it needs to be done.
It is critically important that you spend the time required to adequately assess the human capital because you need to understand the people who have made the acquired company successful. Again, don’t be afraid to spend the time with this. Do not rush through it. Get the right resources—available both inside and outside your company—to help you assess the talent.
6. Select and retain the right people. Develop a process for recruiting, selecting, and retaining the talent you need and be sure you communicate that process to both organizations. Based on your human capital assessment, you’ll know people’s strengths and their roles in helping the company obtain its strategy. You’ll know whether you have the necessary talent already within the company or if you will need to recruit people from the outside. Lastly, don’t forget to develop the right retention programs, which could be a combination of pay, short- and long-term incentives, and future opportunities in the new company.
7. Design and implement the right human capital programs and processes. With the start of this newly integrated organization, be sure you hone all your key human capital processes to ensure they are supporting your short- and long-term growth and will help drive the success of the business. Some processes that will impact the future include recruiting, retention, performance-management, succession planning and development programs. Understand that you might not be able to do everything on Day One but you must have a plan that can be put in place over time.
Remember your goals: It’s all about trying to achieve your business strategy and financial objectives, but also, to bring two organizations together as one company that is a stronger entity for the future.
8. Meet your business and financial objectives. Hold people accountable for the achievement of the business and integration goals. You already determined that the acquisition was right for you and you set specific business goals and financial objectives for the acquisition. Now you need one final step: A process in place to determine if those objectives were achieved. Without achieving these objectives, why should you have bothered with the acquisition in the first place?
Bottom line: It’s true that the deal must work financially, but without focus on merging both organizations’ cultures and human capital, the deal’s chances for long-term successes may be far less than its overall potential