Thursday, January 14, 2010

Guidelines for Managing Mergers and Acquisitions.

Post 407 - I believe a company's culture determines how it responds to everything and anything. Some years ago, Aetna bought a "vanilla" group benefit company. It only had 3,000 employees and Aetna at that time employed about 50,000 people. Aetna's CEO didn't think it important to assimilate the new company into the Aetna culture. After all, he reasoned, there were only 3,000 of them so what impact could they have?

The Aetna culture was pretty loose in those days. But the "vanilla" company's culture was incredibly strict and disciplined. Everyone was on the same page. They wound up taking over the Aetna culture and destroying what had been in place for more than 100-years. Very soon, Aetna had one line of business, group benefits, instead of the five or six they had before the acquisition. About 18-months after the acquisition, the Aetna CEO was quoted as saying that had they understood the importance of culture, they would have approached the acquisition very differently. Of course, by then it was too late and he lost his one of the vanilla guys. So there’s more to successful mergers and acquisitions than just focusing on the numbers.

To consolidated different companies successfully, consider using the following guidelines:

- Be clear about the logic of any potential acquisition. Rather than relying on ‘synergy,’ ask how the combined companies will leverage their assets and abilities to make the whole worth more than the sum of the parts. Understand just how the new combination will create value.

- Besides examining a prospective partner’s financial and legal standing, use cultural due diligence to examine organizational health, leadership talent and managerial abilities. While some differences can be worked out, others are insurmountable and should be avoided.

- Apply the guiding principles that were important to the success of the acquiring company to the acquired business as well. If core values remain at odds, today’s merger will likely become tomorrow’s breakup.

- 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.

- Specify specific roles for the top executives of each of the merging companies in advance. Working it out as you go is usually a recipe for disaster.

- Standardize transferable practices and apply what’s worked in the past. If the acquired company insists on doing things its own way, be sure it’s essential to achieve strategic leverage rather than a way of resisting change. Allow full autonomy after a sustained period of excellent performance during which the acquiring company learns to trust the acquired company’s leadership.

- Avoid engaging in further acquisitions to fix, justify or further leverage the original deal. If it doesn’t provide the anticipated value, fix what can be fixed and cut your losses.

Some additional tips:

- Define 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 some high-performing people and give them responsibility for managing the integration process.

- Reward the behaviors that support the culture you want.

- Make sure the executive compensation system rewards the behaviors you want.

- Make it painful to hold on to the old.

- Focus on getting to the point where no one talks about the merger anymore.

- Get the transition over with as quickly as possible.


Witney Accountants said...

I remember I was working for TMcL when it merged with Peats. The culture clash was enormous and it cost some good people. There was no integration - it just happened right down to the dictat we had to charge for our photocopies - it cost more to write down the entry than we recovered from the clients. I left!

john cotter said...

Sometimes, that's the best course of action to take. Hope you're happier where you are now. Thanks for commenting on my blog.

Unknown said...

Mergers and Acquisitions, generally called "M & A" in high fund parlance is one of the more unique areas of fund and company. Usually bigger dealings in this area are managed by investment lenders or vendor financial institutions, but daily a number of method and small size companies either complete or consider such dealings. Usually when a entrepreneur or management group contemplates a merging or purchase there is a technique behind the deal.

Mergers Acquisitions