Avoiding post-M&A blues

By Ann McDonagh Bentsson

Post M&A performance of many companies rarely lives up to the euphoria of the " actively looking " days. Instead there is disappointment when increased market share, new market penetration, improved production and better financial returns all fall below expectations long after a company has been acquired. Yet good target-fit, realistic returns-assessment sound due diligence and expert in-house M&A teams have never been more in evidence.

Psychological pit

The " psychological pit " following mergers and acquisitions is well documented. Production drops, key people leave, results are lower than forecast and morale sinks. But understanding that it is common for a low performance period to follow quickly on the heels of a deal, does not seem to help companies avoid it. It is during this phase, which coincides with greatest integration activity, that disappointment is keenest, especially if the " pit " lasts a long time.

Post-M&A processes

Working with acquiring companies has led to the belief that a large part of the problem lies with deficient post-M&A processes. Those which exist are often ad hoc, unrealistic, or not applied consistently enough. In other cases some sort of framework is there, but the processes required to implement it are not supported across the organisation.

Post-M&A management often puts too much emphasis on overt integration of the newly acquired company. The acquirer wants to be seen to act decisively, rather than adopting a consultative approach which can be better in the long run. Steps towards integration may be taken nervously (or defiantly) and early reorganisation applied inconsistently. All this leaves the purchased company worried and unco-operative.

Suspicion that the newcomers' jobs are " up for grabs ", whatever was said at the M&A negotiations, may make matters worse, especially when the companies have been rivals for years. Sometimes too much is attempted too quickly, too little, too late, or a hellish cocktail of both. Often the acquirer simply fails to apply the same degree of insight Into the new acquisition that would be applied when carrying through other more familiar internal change.

Yet there are examples of smooth integration and good post-M&A performance, normally from companies with a clear understanding of their own image and structure and, above all, companies that have recently managed internal change successfully.

This is because the processes and mind-sets which well-functioning companies develop to handle change internally are also applicable to integration in the post-M&A phase.

Like any other serious organisational change, an acquiring company needs to handle the post-M&A integration with confidence and good planning, instead of " fiddling around the edges " of superficial detail as many do. A typical process model for handling internal change might be :

The same processes can be applied following a merger or acquisition. Allowances must be made for additional factors such as differences in corporate or international culture, especially regarding problem solving, time-keeping and so on. However, the fundamentals are the same. The company's usual change processes can be modified to suit the particular characteristics of the acquisition (as they would anyway for different types of change), but their integrity, familiarity and order provide a sound structure for integration.

Check company image and structure reflect current goals. If the company is unsure of its own image and goals, it is unlikely to make a good job of integrating another organisation into it. In advance of a merger or acquisition, you should :

Assess impetus for change

Look at why the deal is taking place and include both external factors (deeper market penetration to safeguard/increase existing share - may mean an international profile) and internal factors (push for company growth to critical mass).

It is important for the company to keep in mind throughout the integration process why it made the acquisition. Although this may be modified over time, it nevertheless provides a macro view of what it hopes to gain from integration while the micro problem solving and " fire-fighting " goes on.

Where possible, the degree to which acquisition criteria are being satisfied should be continually assessed and benchmarked. Areas where the newcomer might cause further change in other areas of the company, such as in the international divisions, must also be considered. Business activities will be impacted, but it must be considered how and where the impact will be felt and whether unfamiliar regional attitudes, norms, ethics etc...are involved.

Business will undoubtedly be impacted if synergies are expected or, more seriously, if the companies have been rivals in a market. Post-M&A insecurity can even affect the acquiring company's own customers and production levels.

Consultation across the company is essential at this point, but many companies are so busy making top level decisions that they forget the people below are worth listening to. Middle, junior and supervisory management have their ears closest to the customer. They are also in touch with the production and other teams who are usually concerned for their jobs and as a result might not be meeting targets any more.

A spirit of openness, free discussion forums where questions are aired and answered, and work groups (such as for R&D, sales and maintenance) will help move the company on and accelerate product integration. " Partnering " from both old and new sections of the company encourages internal trust and co-operation. Visits by " partners " to customers and installations are far more reassuring than endless press statements.

To " free up " the change process, take the most important steps :

Integration and the change process it generates is sometimes clogged by a failure to analyse early enough which resources will be needed. Change agents in particular need to be identified at all levels of the organisation since they are expected to act as the yeast in the bread. They should be kept informed and empowered so they can carry through their part of the process.

Frequent consultation and good feedback between the change agents and the decision-makers is essential especially since there will have to be adjustments to any plan, however good. But the change process should not be held up until every detail is worked out. Delay increases the risk of precipitating, or deepening the psychological pit.

Planned changes in working structure, methods, routines and procedures should be communicated at every stage of implementation. Failure to get working structures and routines in place is a commonly identified factor in poor post-M&A performance. Senior management must ensure it knows what it wants from the organisation and tell everyone, rather than leaving them to guess.

Communication is essential. It is no good paying expensive consultants to design a new structure if you keep it a well-guarded secret from those expected to participate in it. Most middle managers, for instance, are as concerned as their staff about what is being planned at higher levels. This is even worse for staff at the new acquisition who do not have past form to judge senior management on.

Middle managers are among any company's key change agents, but they are rarely told the overall strategy or what their department's place is likely to be in a new organisational structure. It may be enough just to update and inform if there is genuine doubt about the future of some sections. Information is crucial if a new structure is ever to be in place.

A watch must be kept on reactions and results. And measures should be ready if intervention is necessary. Even the best planned transaction can go wrong because of unexpected internal or external factors. The change process should include measures to deal with situations that arise. When something goes wrong, many people will claim they always knew it would. Few even consider putting their worries or ideas forward in time. Often they were simply not asked, or feared being seen as trouble-makers, particularly in the initial euphoria following the deal.

Company-wide brainstorming sessions can help pinpoint problems early and solve them before they become crises. Regular workshops, consultative surgeries and, above all, the creation of a genuine spirit of openness are all factors in achieving smooth and long-lasting integration.

Leadership is crucial

Whatever the company's organisation structure - flat, hierarchical or something in between - the attitude of the M&A " focus person " (often the CEO) is crucial. They must be positive, optimistic (but realistic), and willing to be seen and heard by all employees, old and new. Regular open meetings involving more than just a few senior managers can dispel damaging rumours and encourage loyalty throughout the organisation.

Good management is catching and an example from the top sets the tone. High-profile leadership often used in serious internal change management, but is less evident in M&A once the deal is done. This is a pity because it is important everyone knows where the enlarged company is going so they can help get it there. The leader's vision might be awe inspiring, but he cannot achieve it alone.

Growth through M&A may be simply another way for organisations to change, but it is a dynamic and forceful one. Even small acquisitions affect the whole organisation far more profoundly than many companies realise. To minimise post-M&A performance dips, companies need to spend time before they target, checking their image is up-to-date and convincing. They should also assess their goals and resources and examine the processes by which they will manage the internal change to come. Integration can then be tackled more effectively.

Careful, consistent application of well-designed change processes reduces the risk of the enlarged organisation sliding into a psychological pit, or at least, can significantly shorten its depth and duration. This will allow the company to reap the expected benefits.

Inter Cultural Management Associates (ICM) is a Paris-based consulting firm which since 1983 has helped managers and organizations work effectively across cultural orders, be they national, corporate or functional.

Inter Cultural Management Associates

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icm@icmassociates.com