Keys to Post-Acquisition Success

By Generational Equity

08/01/2016

Unless you have completed an acquisition or been part of one as an integration team, it’s hard to appreciate the work it takes to make a transition successful. Since many of our readers are “sellers,” I thought it might be interesting to take a look at the M&A process from a buyer’s perspective, specifically analyzing the steps that are key in order to improve the odds of post-merger integration success.

Recently, HR services provider Insperity published an article that took a look at a several strategic steps that buyers should take to help improve an acquisition’s odds. It was entitled “Preparing for a Merger or Acquisition? Here’s What You Can’t Afford to Ignore” and provides great insights on how to prepare your company for an acquisition.

Nearly every client that we work with expresses the importance of his or her business’s post-acquisition legacy. In fact, in many cases, this becomes (along with the relationship of the key employees with the new owners) one of the most important issues clients evaluate during due diligence. The legacy of the business becomes intertwined with the persona of the owner to the extent that post-acquisition success often becomes critical even if the seller departs immediately. This is how Insperity describes the issue:

Mergers and acquisitions can fail for a variety of reasons, but two you can’t afford to ignore are poor culture fit and human capital issues … [Fortunately] there are things that you can do to help prevent your company from becoming an M&A statistic.

Based on our experience, post-merger integration success begins long before the deal closes. In fact, if you wait to consider and plan for the integration of your company until the final check clears, you will almost ensure that your company will have a tough transition under new ownership. One of the first steps you need to take is to assess the culture of your business in conjunction with that of the acquirer’s, says Inspertiy:

Successful mergers often are ones where the companies’ cultures and values are similar.

While every business will have its own company culture, this is one area that will make a difference if you can get a close match to your acquiring company. And if it’s not a match, is one company or the other willing to change to make things better?

The answer to the latter question, based on what we have seen over the years, is often no. Or, in reality, even if the desire to adopt a different set of values is there, it can often be a tough transition, even with the best of intentions. Since no two cultures are identical, and since a company’s culture is largely driven by the personality and spirit of the founder, communication is vital post-acquisition. And the earlier you can start this process the better.

The reality is that because confidentiality is paramount for most private company transactions, communicating to your employees/customers/suppliers about the pending merger or acquisition may be nearly impossible. However, the sooner you can meet, at a minimum, with your key employees, the better the odds of success are. Here are some items to look at as you create your communication plan:

• Who needs to know about the merger and acquisition? You’ll be communicating with employees, customers, channel partners, vendors, media, etc.
• Who needs to buy into the changes resulting from the acquisition? You should have a core team of early adopters who will be your champions of change. Your leadership team should be unified in how it presents itself and information.
• Who and what will be impacted and how? This can include anything from processes and deadlines to whether there will be job reassignments.
• How will you communicate each piece of information? In print, email, general announcement, formal letters, press release, website or social media? It will depend on the audience and the formality of the announcement. Some communication will have to be vetted by your legal counsel to ensure the information is accurate and aligned with the merger agreement.
• Establish a timeline. What types of milestones will you put in place? For example: By 60 days out, we will have job assignments made. By 30 days all employees will have met with their supervisor.

Depending on your company’s culture, the sooner you begin communicating to key players regarding the pending acquisition the better. This has to be handled carefully, again, because of confidentiality. Only you can decide, in conjunction with the buyer, how to design your communication plan. The “how” and the “when” of the plan are the most important facets to analyze.

Don’t Assume the Obvious

One of the most interesting dynamics that we have seen is that sometimes the simplest issues are the ones that are too often not covered in a transition communication plan. For example, the primary question most employees have is this: Who will I report to after the transaction closes?

Insperity has some excellent ideas about this:

One of the biggest reasons mergers and acquisitions fail is due to poor change management. As a result, how you interact with employees and manage the change process can be the difference between success and failure as you merge two organizations…

What will the organization chart of the combined organizations look like? Determine job titles and the reporting hierarchy.

As we all know, humans abhor change. Most will put up with a great deal of grief before enacting change in their personal lives; change at work can be even more intimidating. Quite simply, as the old saying goes, in the absence of information, rumors will fill the void. Nothing can endanger post-close success more than the good old rumor mill. The sooner you can get in front of the discussions at the water cooler and manage what is being heard and said, the better the transition will be.

The good news is that post-transaction success can be achieved if you are willing to take the time with the buyer and plan the steps involved. To not do so will almost surely spell disaster.

And don’t think that just because the new owner is retaining you for a couple of years that your presence will automatically smooth and speed the transition. What we have found is that invariably employees will start coming to you with common refrains: “But Larry, you wouldn’t have made that decision” or “Not sure about that one boss.” This is where your ego can get in the way and really impact the new company quickly!

Bottom line: It is always better to manage any change process but especially when it comes to people’s jobs and financial futures. Be sure to carefully plan how the new organization will be structured and what changes need to be made post-acquisition to make this a reality. And most importantly, decide with the buyer when and how to communicate the deal to your employees, suppliers, clients, and community.

To learn more about this vital concept, read the Insperity article: Preparing for a Merger or Acquisition? Here’s What You Can’t Afford to Ignore.

And to expand your knowledge base on this topic even further, I suggest attending one of our exit planning conferences to all business owners. There you will be able to learn all facets of post-transaction success. If you are interested, please contact me at 972-232-1125 or email me at cdoerksen@genequityco.com and I will put you in touch with one of our M&A advisors.

Carl Doerksen is the Director of Corporate Development at Generational Equity, part of the Generational Group.