Viewpoints
When Two Become One
Tom Bonadio
Originally Published In:
BUSINESS STRATEGIES MAGAZINE
Author: Thomas F. Bonadio, CPA
You’ve spent weeks or months on an acquisition, finally reached agreement, and everyone has signed on the dotted line. After the ink dries comes the hard part – the grueling work of managing the integration of two companies. Industry experts say between 60% and 80% of all acquisitions fail to meet pre-acquisition goals and objectives, and you don’t want to be another statistic.
The most common (and lethal) reasons why acquisitions fail include:
- Bad initial strategy and/or emotional buying
- Failure to properly analyze and value the deal synergies
- Poor cultural chemistry between buyer and target
- Unrealistic expectations
- Sloppy due diligence or ignoring the red flags
- Excessive debt load
- Lack of or poorly implemented transition plan
Hopefully you’ve addressed all of these issues before the deal closed and are now focusing on executing the transition or integration of the two companies. As the CEO of the acquiring company you need to take a very active, hands-on role during this critical transition period. You have to set crystal-clear performance expectations, communicate these expectations to everyone at all levels of both organizations, share your vision as to what the combined companies should look like, and be sure to address the emotions involved in dramatic change.
Acquisition creates change, especially in the acquired company. Unless you address the emotional issues involved, the transition effort can quickly grind to a halt. Be honest, don’t confuse cultural differences and nervousness with political maneuvering, avoid unplanned turnover, try to keep the best of the best, and don’t put new people into new jobs. Above all, an effective transition requires a team effort. To succeed, the managers of both companies must work together early on and throughout the transition process.
A transition plan doesn’t need to be overly complex or detail-oriented. Many times, the shorter and simpler ones work better – as long as they conceptually integrate all of the key parts and players. Assign responsibilities, set deadlines, be seen, and follow-up.
Be prepared for surprises. You will now discover things about the acquired company that you did not learn during the due diligence process. The acquired company’s management team will behave differently than expected and it’s likely that their relationship with your management team will venture into unexpected dimensions.
Beginnings are delicate times. People will hear things never said, react to body language in unintended ways, and make fairly incredible assumptions. Be patient – correct all of the misconceptions and misinterpretations delicately but quickly, before they get out of hand. Understandably, there will be nervousness and heightened sensitivity, so you have to be solid and steady and help everyone to settle in to the new world order.
During your due diligence, you paid attention to the cultural differences between your company and the acquired company. Now you have to make some potentially hard choices. If your company is shirt-and-tie and the acquired company is sandals and shorts, be prepared for an intense emotional undercurrent. Set the standards, enforce them, and manage the backlash that will surely result.
Handling vendor relationships is another key to success. The vendors of the acquired company will be on edge and looking for signs of change. They need to be reassured. Be especially careful of the acquired company’s customer base as you are “fresh meat” that they may press for advantages or cajole into concessions. You will be made painfully aware of every real or perceived problem that the customers have ever experienced.
You can realistically expect that the integration of your company with the acquired company will take between six months and a year.
It will take at least that long to sort out people issues, and make sense of operational issues ranging from IT systems and accounting integration to establishing a common set of human resource policies and procedures to integrating the email and phone systems and more.
Every operational issue will seem to take on a life of its own, and will take longer to resolve than expected. As the CEO, you need to initiate and oversee operational integration processes and watch carefully how they develop both from technical and human relationship points of view. The people involved need to know you are watching. You also have to make sure that projects are all heading in the same direction, but avoid causing conflict and contradiction in the overall integration scheme.
The end result of integration is to realize the synergies that motivated you to make the acquisition in the first place. Don’t lose sight of that. In fact, you should organize your whole integration effort around the goal of realizing those synergies. If it involves letting people go, or moving an operation, or shutting down a department, do it right at the start of the integration process. If there is pain involved, get it over with quickly and move on.
The integration of two companies is a huge undertaking that will disrupt both businesses. Sales will probably fall off a little, margins may deteriorate, and all the “normal” everyday things will get confused and untidy. But don’t let that distract you. Expect it, manage what you can, and tolerate the rest. Get the integration done first and done well, and then focus on getting things back to a new “normal”.
From what I’ve seen over the years, the CEO who focuses relentlessly on a successful integration has about a 75% chance of succeeding. Those who lack the will, or who get distracted, are the ones who stumble. It’s such a large job, and demands so much, that only a CEO dedicated to “keeping an eye on the ball”, can pull it off successfully.
Disclaimer: The Bonadio Group provides the information in Viewpoints for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in Viewpoints are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
