By John Pancoast
We all bring our collective experience to bear on the dilemmas and decisions of today. For some of us that experience is more extensive than others. Every now and then we find it our duty to sit back and reflect on how we have come to have the convictions we do about good and bad practices, right and wrong decisions, fact and fiction. Herewith we offer not the top ten, but a quite digestible six best practices that will ensure success in closing and integrating your next acquisition.
1. Plan for aggressive synergies. Make sure to stretch them far enough to make the deal ROI appealing to the Board. In the current fully priced environment, it is harder and harder to get Board approval, but don’t let that get in the way of a good acquisition. As one division head said, “Look, the key for the management team is to get the deal done. We can always figure out how to make the economics work once we have the scale that the deal brings us.”
2. Limit the scope and scale of pre-closing visits. Employees will get wind of the situation and start worrying about their jobs instead of getting work done. One due diligence project leader told us, “We have learned the hard way that employee distraction accounts for declines in sales and profit in the first year of a deal. We didn’t want to spook anybody with the fact that we were buying the company, so we did our best to conduct our discussions only at the highest level, and only off site.”
3. Focus due diligence activities where they will pay off the most – the financial and legal downside risks. New products and customer segments are what the seller likes to use to distract you from seeing the business clearly. Said one Business Development VP, “We have found that it’s far better to forecast cost savings and efficiency synergies than to figure out how to grow the top line. Besides, you can’t take upside potential to the bank.”
4. Avoid devoting scarce resources on people issues, or the link between the target company’s culture and their results. As one Integration Manager told us, “That culture difference stuff is bogus. There’s really nothing we can do about culture; either they buy in to our culture or it’s time for someone to hit the road. Anyway, people will want to keep their jobs, so I’m sure they’ll jump on board once they know the drill.”
5. Do not involve too many target company managers in merger planning. And after closing, try to keep them from generating too many new ideas that will prevent you meeting your commitment to the Board. As one CFO said to us recently, “We knew what we wanted to do with the business. Hey, if they were so good, why were they selling it, anyway?.”
6. Be sure to leave the acquired business alone for at least a year or two. It’s not a good idea to tie the management down with integration activities that will just distract them from their business. The CEO made it clear, “We need them to meet the plan in our board paper. We can always integrate them into our systems and processes as part of next year’s plan. That stuff’s not strategic.”
So, forearmed with these absolutely serious nuggets of outstanding integration practices, go out and make that deal!