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Post-Acquisition Insights – An Insider’s View

By Generational Equity

09/02/2016

Sometimes the best lessons in life are the ones we learn from others. This allows us to share in their knowledge without the pain and frustration of going through what they experienced. This is especially true in the M&A arena.

I recently came across a well written, post-merger essay written by a fellow who took the leap and acquired one of his competitors in order to grow his business. Written by Ian Fergusson and aptly entitled, “Lessons Learned During a Merger,” Mr. Fergusson is quite open with his experience in making a very timely acquisition. And in the end, even though it turns out that the move was a success, it was not without some hiccups along the way.

Here was his biggest miscue, according to Fergusson:

In hindsight, I think the biggest mistake I made was to agree to keep this sale completely confidential until the deal was confirmed and I had officially taken over. This meant the first time I met any of the employees they were already on my payroll. There had been no opportunity to meet existing employees, interview the office staff, or gain any insight into systems and processes prior to the day of the merger.

The issue of confidentiality and the best time to inform your staff is a real challenge we face with every transaction. In some cases, our deal teams counsel that as early as you can, you need to bring your key players on board, as well as the acquired team’s vital folks, before the transaction takes place if possible. However, in other circumstances, it may be better to wait until the transaction closes to inform staffs of either firm.

The key, of course, is flexibility and an understanding of the dynamics of your team and the group you are acquiring. In Mr. Fergusson’s case, clearly it would have been better to at least inform key employees of both groups in advance to smooth the transition. Some deal makers will actually encourage both seller and buyer to set up transition teams well in advance of the deal closing. These groups are usually comprised of vital, trusted employees who are empowered to begin exploring key conversion items before the deal closes so that they can be addressed in advance and not “surprise” the management team post-acquisition.

The Match Made in Heaven?

One factor to keep in mind if you are planning an acquisition event is this: Every company’s culture is unique. This is especially true of privately held businesses, many of which take on the personality, image, and make-up of the founding entrepreneur. In order to better enable a merger event, you need to take stock of this and make sure that the culture you are acquiring meshes with yours.

For example, if your business is highly formalized, consisting of extensive policies, procedures, manuals and documentation on how work is supposed to be conducted, any company you acquire will need to be similar, otherwise, you may have a painful transition as you help your newly acquired employees understand that now things are being documented as never before.

The opposite scenario is true as well: If your business is less formalized, if you give employees tremendous latitude in their daily operations, acquiring a more formalized operating business could be a challenge.

Neither system is better than the other, what works is what works for you; however, you have to be cognizant of the fact, pre-acquisition, that your company’s culture could be radically different than the target’s you are acquiring (and vice versa, the environment you are selling could be different than the one acquiring). Mr. Fergusson learned this lesson the hard way and survived; however, clearly if a transition team had been created in advance, the painful transformation to the new company could have been ameliorated a bit.

Of course there is no such thing as a “perfect” post-transaction merger. Let’s face it: Companies are comprised of people, all imperfect, and because of this human factor, even perfect preparation and planning can go askew. However, you can learn from the Fergussons of the world and realize that your post-transaction success can be dramatically impacted by when and how much you divulge to your crucial employees on both sides of the acquisition table. And, the concern about telling employees in advance of the closing could be further mitigated if current ownership would be remaining on after the sale.

The great news is that Generational Equity and its deal teams have collectively seen just about every post-transaction challenge out there. We can’t guarantee post-closing success – too much is out of our control once the deal is done. However, we can help our clients see and plan for hurdles that may arise. This is an important benefit of hiring us. We simply have seen it all via our hundreds and hundreds of closed deals. Here are some fundamental insights from our clients:

Bottom line: Don’t trust your post-merger victory to chance. If you are planning to exit or acquire (or both) within the next 3-5 years, you need to reach out to us. Generational Equity has the M&A experience, knowledge, and insight to greatly add to your post-transaction success.

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

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