The Current Mergers and Acquisitions Marketplace
As the economic recovery from the “Great Recession” has been considerably slower than expected, companies have increasingly turned toward mergers and acquisitions as a way to accelerate sales growth and improve market share. Consequently, both the number and pace of M&A transactions have risen rapidly over these last three years.Unfortunately, the data suggest that the vast majority of these deals will not deliver the value that was originally projected. Even worse, many of these acquisitions will actually fail!
However, you can avoid such failure by following 5 best practices, especially when integrating small-medium size businesses:
#1: Understand the Cultural Fit
If you decided to acquire a company, and they agreed, there was likely an obvious strategic fit. Assuming the appropriate due diligence was conducted, a mutually beneficial financial agreement was also reached. However, those were the easy parts of the transaction. Most mergers/acquisitions fail because there was not a good cultural fit.
It is critical to deeply explore the culture of a potential acquisition and assess how that culture fits with that of your own business. Remember, the culture starts at the top of the organization and permeates all levels of the company. Even if the acquired company’s owner/CEO is not staying on board post acquisition, the culture that leader created over the years will remain. If that culture conflicts with yours, you should consider abandoning the deal!
Trust me, I speak from experience! We have made the mistake of thinking we could change the culture of an acquired company, and we have suffered the resulting consequences. By the time you impose your culture on the new company, many key people will have either left of their own volition or because you decided to terminate them. In a small-medium size business, most of the value is tied directly to the employees that work there. If several leave for any reason, the sustained value of that business is severely jeopardized.
#2: Communicate, Communicate, Communicate
It is impossible to over-communicate with both your existing and newly acquired employees post acquisition. Communication is the first step in establishing trust with the new employees and to clear up any misperceptions with your existing ones.
First, prior to beginning due diligence, appoint a communications team that will be on-site several times during the first year post acquisition. This team will be the cornerstone of developing trust with the new employees, demonstrating the culture of your company, and identifying best practices that can be deployed elsewhere in the business.
Second, remember that the first time you address the newly acquired employees, they will not hear anything! They will be in a state of shock and will only be concerned about how this change will impact their personal lives. They will be assuming the worst and immediately be worried about their employment security, their compensation, their benefits, and how they will explain this to their family and friends.
Even telling them that they will keep their jobs, maintain their current compensation levels, and receive better benefits won't allay their concerns and anxieties. They simply won't hear you, or believe you. Therefore, your communication strategy must focus on telling them the same things repeatedly and consistently.
HR, the communications team, and - especially - the CEO must be very visible for the first several months, getting to know each employee personally. These one-on-one interactions will pay dividends for years as they begin to learn about, and later, trust their new leaders. Having the personal eye-to-eye contact and showing the willingness to listen to them (as opposed to telling them what you think they want to hear) cannot be overstressed.
Third, don't forget about communicating with your existing employees about this new acquisition. They will be interested to learn more about the group, what they do, how they fit strategically within the company, and how this might also affect their employment. They actually may have many of the same fears and anxieties as those of the newly acquired employees!
#3: Educate - Play the Role of a Coach
As executives, we often make the mistake of assuming the new owners or managers understand and know how to do many of the employee relations and administrative tasks that we take for granted. We forget that many of those things, and the jargon we use to describe them, have been incorporated in our culture for years. Some examples are things like:
- Strategic planning
- Performance management
- Budgeting and forecasting
- Company policies and procedures
- Servant leadership
- Succession planning
- Information sharing
- and management practices/traditions.
It is important to play the role as a teacher/coach during the first couple of years post acquisition to assist the management of the newly acquired company. Show them how to do it the first time, or at least provide examples they can use as templates. Encourage them to try these new processes while letting them know you will be there to help if needed. This will speed integration, build trust with new management, and infuse your culture into the new company more quickly.
#4: Listen
The newly acquired company succeeded and had value because they were doing many things right. We should remind ourselves that it will be far more important to listen to their ideas and feedback than to tell them how good we are, or why our way is better.
Best practices in both companies should be identified and shared to attain maximum value post-acquisition. Listening to their questions, concerns, and suggestions is far more important than telling them about how successful your company has been!
#5: Follow Through on Promises
Be careful what you say, because all eyes will be watching to see if you keep your word. One slip-up and your credibility is doomed! If a promise or commitment is made, it must be followed through. The integrity of the organization is at stake, as is yours as a leader!
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