Keys to Winning the M&A Game After the Deal is Signed

In my previous article, I outlined the keys to winning the M&A game before the deal is signed. Here, I’ll detail the keys to M&A after the deal is done.

Eliminate Uncertainty

Shortly after a deal is signed, executives from the acquiring company arrive at the headquarters of the acquired company where the leadership from both companies hold an all employee town hall meeting to extoll the virtues of the merger and paint a bright picture of the future they envision for the combined companies. The eyes of the employees quickly glaze over and the only thing on their minds after they hear the first platitude is, “How does this merger impact me?” and “Will I lose my job?”. Most employees have been through an acquisition before, or know others who have, and “synergies” and RIFs (Reductions in Force) are expected when companies merge. It also doesn’t help that the increased fear of unemployment that grew during the Great Recession still lingers today. Four years after the end of the Great Recession, a Gallup poll found that almost one third of all employees are still worried about being laid off, compared with about half that number before the recession.

Every acquisition, no matter the size, is a major change event that creates uncertainty and fuels anxiety for the acquired employees (and often the employees of the acquirer). It’s human nature that people prefer clarity and knowing what’s in store for them, even if the outcome is negative. The longer it takes to inform employees of their future with the company, the greater the level of uncertainty, loss of productivity, anxiety, and stress. Research published by Sarah A. Burgard, an assistant professor of sociology at the University of Michigan, found that people who felt chronically insecure about their jobs reported significantly worse overall health and were more depressed than those who had actually lost their jobs. In another interesting study on uncertainty, researchers found that people would rather get an expected electric shock now rather than be subjected to the uncertainty of receiving a random, unpredictable shock sometime in the future.

One of the keys to M&A success is to abate the deep-seated uncertainty employees feel after the deal is announced. The longer it takes to address the employees “me” concerns (job, boss, compensation, benefits, location, etc.), the greater the anxiety, lost productivity, and turnover. Employees are expecting the worst and I can’t overemphasize the need to shorten the time that employees are left waiting to hear their fate.

Communicate Honesty and Frequently

It’s often impossible to have all the answers for employees when the deal is announced; however, it’s imperative to provide honest and frequent communication throughout the integration. Robert L. Leahy, director of the American Institute for Cognitive Therapy and a professor of psychology at Weill-Cornell University Medical College, said the problem is that “people who are anxious tend to equate uncertainty with a negative outcome… people who are already worried tend to overvalue negative information” (this is known as confirmation bias).

At the all employee town hall meeting it’s important to honestly answer questions and explain as much as you know. This meeting will be your newly acquired employees’ first impression of your company and their BS detector will be turned on high. It’s essential to be genuine and honest in order to begin to earn their trust. If not, you’ll immediately lose credibility which will be difficult to earn back and puts the entire acquisition at risk. When the question is asked (and it will be asked), “Will there be layoffs?”, answer truthfully. Even in the few cases where you’re able to announce that there will be no RIFs, employees will still remain skeptical for quite some time.

In one situation, we told the employees that ~10% of the staff of the combined companies would be laid off; but, we didn’t know who. We explained that the management team from both companies would work together over the next sixty days to figure out the combined organization and we gave the employees a specific date when everyone would be notified of the changes. We also followed up by sharing the separation package employees would receive if they were laid off. We were a publicly traded company buying a privately held startup and our separation package was much more generous than they expected. We were surprised when several employees actually volunteered to take a package. True to our word, we kept to the decision date we had previously announced. By telling employees what we were going to do and then doing as we said, we built upon the credibility we were trying to establish from day 1. It’s also essential that all the employee actions are communicated at the same time and an “all clear” message is communicated so employees aren’t continuously unnerved by the uncertainty of waiting for more shoes to drop over time.

In the absence of frequent and honest communications, people will expect the worst. Rampant rumors will fill the voids, and those rumors will be far worse, and much more damaging, than the truth.

Speed over Perfection

In addition to reducing uncertainty and honest and frequent communication, another key to success is to be decisive and act quickly on the integration. According to a survey by Aon Hewitt, the #1 cause of deal failure was that the integration/implementation took longer than expected. One of the keys to success prior to signing a deal is to develop an integration plan for accomplishing the goals and critical success factors (CSFs) that were established to achieve the strategic rationale for the deal. The integration plan lays out the specific deliverables with timelines and the people responsible for completing them. Immediately following the close of the deal, this integration plan needs to be put into action with an emphasis on the deliverables to be accomplished within the first 100 days post close.

Voltaire popularized the phrase; perfect is the enemy of good. This sentiment is as true today as it was in the 1700’s. In my experience, the more time you take to “perfect” an integration, the more likely the opposite will result. You have to accept the fact that you won’t have all the right answers and you never will. It’s more important to move quickly to tackle the complex and difficult decisions that need to be made within the first 100 days while you have the momentum and mindshare of the employees from both companies. Delaying the difficult decisions will only make things worse.

Dedicate a Business Owner for the Integration

The best acquirers assign a dedicated business owner from within the acquiring company early in the M&A process who has overall responsibility for the success of the integration. The primary responsibility of the integration business owner is to ensure that the business objectives, CSFs, and deliverables that were established prior to signing, and required to deliver on the strategic rationale for the deal, are achieved. Another key responsibility of the integration owner is to serve as the mentor, advisor, advocate, and ombudsman for the acquired company. They help the management team and employees understand and navigate the complexities of the acquiring company. They also help to address and bridge the cultural gaps that exist between the two companies.

The level of seniority and time commitment of the integration owner varies depending on the relative size and complexity of the company being required. For a large deal with a full complement of business operations (i.e. Sales, Marketing, Development, G&A, etc.), the right owner might be a vice president who is dedicated full time for a year or more to ensure the success of the integration. In another case, where you’re acquiring a small product company primarily for their IP and engineering talent, the appropriate integration owner might be a director of product development who works part time for several months to ensure the success of the integration.

Some of the best acquirers include an assignment as an integration business owner as an integral part of their leadership development program. In these companies, aspiring executives serve as an integration owner as a necessary step in their career development to become an executive leader for the company.

Experience Matters

The last key to success is to make sure that the person you have managing the integration has deep expertise in integrating companies. Too often, companies make the mistake of assigning someone from the program management office (PMO) with all the requisite PMP certifications to manage the integration project. The problem with this approach is that the traditional PMO is focused on process and project management and is poorly suited to manage the complex, cross functional, often transformational nature of an integration. Also, there is no substitute for the expertise derived from years of experience actually integrating companies. Herbert Simon, winner of the first Nobel Prize awarded in decision sciences (1978), famously stated that “experts can see things that novices cannot.” Based on his studies, he theorized that experts with years of experience in their field have ready access to masses of data at their fingertips that allow them to see things that novices, no matter how intelligent, cannot. Possessing this critical mass of information, accumulated through years of experience in their field, allows experts to develop powerful heuristics for anticipating and solving problems within their field.

The most successful serial acquirers have dedicated integration management offices (IMOs) made up of experienced integration managers (IM) to successfully manage the integration of the companies they acquire. The IMO is brought in early in the deal during diligence to work with the deal team on the goals, operating assumptions, synergies, and the integration plan. Once the deal is signed, the IM will work closely with the integration owner to drive the integration process cross functionally. They serve as the advisor to the integration owner and function much like their chief of staff for the integration. Because of their expertise with integrating companies, they will see, and more importantly, anticipate, where an integration can go wrong and proactively intervene to keep it on track.

Although the activities of the major serial acquirers and mega deals grab the headlines, the truth is that the majority of companies only do a small number of deals each year. Also, the deal size for the overwhelming majority of deals is relatively small. In 2016, 76% of the deals are expected to be valued at less than $500M. It’s difficult for most companies to justify, attract, and retain a full-time integration manager (let alone staff an IMO) with the level of expertise necessary to ensure the success of the post-merger integration. In these cases, it makes sound business sense to bring in an integration consulting expert to successfully manage the integration and realize the return on your investment in the deal. 2015 saw M&A transactions top $5T for the first time in history and there is no shortage of major consulting firms who are capitalizing on this by specializing in M&A and post-merger integration. However, in most cases, you don’t need a high priced McKinsey, Bain, Accenture, KPMG, E&Y, or other major consulting firm to manage your integration. There are a number of boutique consulting firms and consultants, with years of experience in M&A and post-merger integration, available to ensure the success of your deal and the post-merger integration.

Keys to Success After the Deal is Signed

Post-merger integration is very complex and unlike any other program or project your company will tackle. This is, in part, why the vast majority of acquisitions fail to achieve the expected results. To ensure the success of a deal after it’s signed, you must work hard to eliminate the uncertainty that arises immediately following the announcement of the merger by communicating honestly and frequently with employees, being decisive, and acting quickly in the first 100 days post close. It’s also imperative that you dedicate an integration business owner with the appropriate level of business maturity and experience to be responsible for the success of the integration. In addition to all of this, you also need to have an integration manager, with deep integration expertise, plan, and lead the post-merger integration effort.

If you would like a proven expert to help ensure the success of your acquisition, before and after you sign the deal, please reach out to me for a free consultation at [email protected].