Once the deal is closed and the hard work is done, it’s time to turn on the value taps of your newly acquired company and start paying back your investment. If only it was as easy as that.
Post-merger integration is harder than it sounds. It gets harder still if the buyer and seller have different operating models, styles, cultures and ways of working. For the seller it may be the injection of resources to push forwards, or may be an exit and reward for years of hard work. For the seller’s staff it looks a bit scary to be eaten up by a much bigger fish. The buyer might see it as an exciting step to get them closer to their goals. And of course, it’s tempting to think they are only little, so they will bend to work like we do. Won’t they?
I’ve done a lot of work on the buy-side and know how easy it is to make a lot of assumptions about folding the acquired company into an established way of working. Spare a thought for the people on the other side of that coin, and maybe we can help them to be better prepared for what lies ahead.
First, let’s look at the founder/owner and how they respond after the euphoria of closing a deal with all those zeros attached.
When you are your own boss, you set the agenda, the targets, and measure success in your own way. You understand the constraints and risks, and know what to do if things don’t quite go to plan. The team has grown around you, and is full of people you know and trust to get things done. Some will have been beside you for years.
Then you jump off a ledge, and the new world is different. Not only is it full of a lot of new and different people, but there is also someone above you now. They call the shots and set the boundaries. You don’t really know this person yet. There is so much to learn about their style, dynamism, patience, tolerance, sense of humour and behaviour under pressure.
How long have you really known each other and how well? Be honest – there’s a lot of optimism through the courtship, lots of best behaviour going that may not survive the first crisis.
If the company has been built towards a certain objective, and followed a certain path to get there, it’s not always going to follow that the same objectives and paths are in the minds of the buyers.
What was done naturally may not now be suitable. Take the example of writing a proposal. The informality and flat structure of a small company may have helped things to move quickly in the last moments before a bid is submitted for a new project. The technical offer, pricing, payment terms, and legal Ts and Cs may have been checked by one or two senior people, both of whom were actively involved in the bid anyway and knew it was due that evening.
A larger company will take longer, because reviews may have to go through several teams to be signed off. The small company bid team can’t assume this will happen seamlessly on the last day, so different approaches will need to be adopted to avoid missing out on the opportunities the buyer was relying on to create value.
Schedules and meetings
Bigger companies tend to carry a bit of meeting baggage. Some do better than others, but they can rarely match the proximity and immediacy of small companies. Some of the meetings may be in a different city, or even in a different country, and that really hits the productivity of a dynamic leader who had everything at their fingertips before the merger.
It is possible to say no, but owners plunged into the corporate processes must learn some key skills in prioritisation and strategy. It’s so easy to accept every invite and find the eye has gone off the ball after a few weeks and targets are being missed. It’s a brave step, but one well worth thinking through ahead of time.
In it for the long haul?
I’ve left potentially the biggest question to the end, but it needs clear thought right from the beginning. This is around the long-term futures of owners. and leaders post-acquisition.
There are many scenarios here:
- Owner walks away with cash immediately and hands over the team to the acquirers
- Owner continues to lead the team, perhaps for a limited period with an earn-out agreement
- Owner is fundamental to the continuing development of the small company and remains in post
- Owner is fundamental to the strategic growth of the acquirer and is elevated within their structure on completion
- Owner and/or acquirers find the reality doesn’t match the expectations and so quits or is fired
Getting the best understanding of each other’s plans is critical before the deal is concluded. The best integrations proceed on the basis of shared commitment to a known outcome, topped up with some good chemistry. If those ingredients can be found, it makes the job of value creation a lot simpler when thing start to move quickly for the combined company.
In all the excitement of the deal, there’s a lot to be said for sellers taking some steps to be better prepared for the culture shock of being acquired.
It’s a big change, not only for the leaders, but also the rest of the team. They will face uncertainty, changes in culture, relationships, processes and priorities. Not everyone will like it and some will move on.
Communication is the single biggest tool in the box. If both parties share their aims and ambitions, opportunities and risks, they will have taken a big step towards a successful integration.
Building upon that, some preparatory steps I recommend looking at include:
- Baseline condition – a lot of this will be uncovered during the due diligence process, but it is worth having a clear view of where you start from to understand the gaps that must be crossed
- Culture – what are the philosophies, working styles and approaches that will be brought together?
- Operating model – what will it look like under the new arrangement and how will the organisation structure, business systems and processes change?
- Governance – concerning reporting lines, delegated authorities and approvals processes to be followed
- Management reporting – what information is required, in what format and how often?
- Collaboration – how will the teams work together in the new arrangement and how does this affect the people on the way in?
- Objectives – what targets and metrics will the team have to work within and how are they related to any reward or performance management mechanisms?
Getting ahead of the curve is good for everyone in the acquired company, and will make life easier for the buyers too. It clears the path towards achieving the value goals that the deal was justified upon.
That sounds like a win-win if both parties can be well prepared for the day-1 starting gun.
There are plenty of resources out there to guide this activity. On the cultural matters, this short paper Planning a successful cultural alignment in an M&A project by Deloitte is a good start, and for a broader look at the operating model transition, McKinsey have posted Realizing the value of your merger with the right operating model.
Of course, the real value is how these ideas are put into practice, especially for smaller companies with fewer resources. That is where tactical support such as mine, based on thirty years’ real-world experience can translate the theory into selective actions that make a tangible difference.
How have you prepared, or been prepared for such a big change? If it is something rising up before you now, then get in touch and let’s talk about preparing the ground for your next exciting step.
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