Thursday, January 22, 2009

Managing mergers & acquisitions.

Startups are often tempted to grow quickly by combining their efforts with those of other companies. However, there’s more to managing successful mergers and acquisitions than just looking at the numbers. According to the worldwide managing director of Bain & Company, 60 to 70% of corporate acquisitions don’t create shareholder value. That means for every ten deals, seven don’t work out as planned. It seems that the road to successful acquisitions is fraught with danger. Mergers today differ from marriages in that there’s seldom a honeymoon period.

Mergers are only a winning proposition if:
- the underlying business strategies are sound,
- the integration plans are well carried out,
- the cultures of the companies involved can be consolidated successfully.

Experienced practitioners use the following guidelines:

• Be clear about the logic of a potential acquisition. Don’t rely on “synergy.” Clearly understand how the new combination will leverage its assets and abilities to create value.

• Use due diligence beforehand to examine a prospective partner’s organizational health, leadership talent, and managerial abilities. While some differences can be worked out, others are insurmountable and should be avoided.

• Design the integration as carefully as the initial deal. If you’re Quaker Oats, don’t buy Snapple and then dismantle the distribution system that made it successful.

• Apply the guiding principles that were important to the success of the acquiring company to the acquired business as well.

• Specify roles for each of the partners and their top executives in advance. Working it out as you go is usually a recipe for disaster.

• Standardize transferable practices and apply what’s worked well in the past. If the acquired company insists on doing things its own way, verify it’s essential to achieve strategic leverage rather than just a way to resist changing.

• Don’t make additional acquisitions to fix, justify, or further leverage the original deal. If it doesn’t provide the value you expected, fix what can be fixed and cut your losses.

• Define the "where you want to be" before you define the "as is." Identify issues of common concern and rally everyone around these issues.

• Get the leadership established as quickly as possible. Promote a few smart people and give them responsibility for managing the integration process.

• Control the executive compensation system to reward the behaviors that support the culture you want.

• Get the transition over with as quickly as possible by making it painful to hold on to the old.

• Always bear in mind that you get big because you get better; you don't get better just because you get big.

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