Merger And Acquisition Integration - Four Groups

4G M&A Integration

Linking Behaviour to Bottom Line Performance

Merger and Acquisition Integration Acquisitions vary widely in ambition and scope, ranging from relatively small bolt-on transactions to transformative mergers. Whilst it is true that deals based solely on acquiring a new technology or product can be relatively straightforward to integrate, the majority of transactions require a more sophisticated approach and therefore pose more complex challenges and ultimately risks to the acquirer. On the whole, acquirers are adept at executing the technical or process side of the transaction, such as technology, systems and infrastructure. However, many acquisitions fail to deliver the anticipated benefits because they do not take into account the more intangible aspects of integration. The difficulties encountered when it comes to integrating two independent entities can quickly lead to unexpected costs, increased frustration, poor morale and require considerable time and energy from senior management. Four Groups has developed a set of simple processes and tools which address some of the potential pitfalls of the integration process; by identifying where difficulties or problems are likely to emerge and where easy wins can be made, it is possible to accelerate and smooth post-acquisition integration, reducing the risk of the transaction failing to deliver the anticipated benefits. Specifically, these tools address cultural compatibility, assembling the optimum integration team, retaining and motivating key staff and managing formal and informal communication. Background

careful management of the people

technology or in most cases a combina-

involved and other intangible factors

tion of factors. Underlying nearly all

Acquisitions vary widely in ambition

surrounding the integration. Assuming

transactions is the belief that the com-

and scope, ranging from relatively

that only motivated employees add

bined organisation will be stronger and

small bolt-on transactions to transfor-

value, treating each transaction as

more profitable than the current entity.

mative mergers. Whilst it is true that

unique and understanding the type of

deals predicated solely on acquiring a

approach required to optimise the

On paper and in financial models, a

new technology or product can be rela-

potential of the acquisition lies at the

transaction may make sound commer-

tively straightforward to integrate,

heart of a successful integration strate-

cial sense, however the reality is often

requiring the assimilation of new tech-

gy.

very different. This is generally because

nology and know-how, the majority of

the data used to justify a transaction is

transactions place some value in the

There are a number of reasons why

the information that is most readily

people and values of the acquired com-

companies acquire others. The ration-

available and easily quantified. Rarely

pany, requiring that morale and good-

ale behind an acquisition may range

does one come across a quantitative

will is maintained through what is a

from; gaining entry into new markets,

comparison of organisational cultures,

period of considerable stress and

acquiring new capabilities, diversifying

and key internal and external net-

uncertainty. In order to achieve this,

product range, boosting market share,

works. Numerous studies over the past

acquirers need to pay attention to the

accelerating growth, accessing new

40 years, using a variety of criteria sug-

Merger and Acquisition Integration

gest that historically only around a third

cultural aspects of an acquisition is

the relative ease or difficulty with

of all acquisitions deliver the benefits

often cited as a cause of a poor or dis-

which the two organisations can be

originally envisaged. Given the amount

appointing outcome. In this case,

integrated. One pertinent question bid-

of time and money put into undertak-

acquirers should not only focus on the

ders should ask themselves is, “Do our

ing these transactions, this is a statistic

strategic

rationale

corporate values and culture represent

which should make companies think

behind the deal but also take into con-

an attractive alternative to those of the

long and hard before executing such projects1.

sideration how the transaction will

target?” If the answer is yes, fully inte-

impact the identity and values of the

grating the target should be a relative-

organisations involved.

ly smooth process, if the answer is no,

or

commercial

Whereas the process side of making an

alternative scenarios should be consid-

acquisition is well understood, such as

Despite thorough due diligence and

ered such as letting the target maintain

dealing with IT systems, accounting

planning, many acquirers fail to take

a higher degree of autonomy and distinct identity.

practices, payroll and benefits, it is the

into account the more intangible

more abstract or intangible issues of

aspects of integration, in particular a

the transaction which often cause the

thorough understanding of the cultural

Retaining, engaging with and moti-

most trouble. Common factors under-

differences between bidder and target.

vating key personnel

mining the success of acquisitions

Culture is often an intangible or

include;

abstract concept which is difficult to quantify and compare. In simple terms

the key issues facing acquirers is how

• Failure to accurately understand and

culture can be summarised as “how we

to identify and retain key personnel.

gauge the cultural implications of com-

do things here” and represents consid-

Considerable value can be destroyed by

bining the two organisations

erations such as how information is

departures and the subsequent loss of

When executing an acquisition, one of

• Failure to understand the networks

communicated, how decisions get

knowledge. Many acquirers will look to

and relationships which are key to the

made, the working style of the organi-

avoid this outcome by identifying key

functioning of the target company

sation, attitudes to risk and other vari-

individuals and offering them financial

• An inability to identify, retain and

ables which define each organisation

and other benefits in order to remain

motivate key staff at the target compa-

as unique.

with

ny

the

enlarged

organisation.

Although effective in the short-term,

• Failing to assemble an effective inte-

Taking a systematic approach to com-

this strategy often turns out to be a

gration team

pare organisational cultures and under-

divisive and negative influence on

• Poor formal and informal communica-

stand areas of compatibility helps

morale.

tion between acquirer and target

develop a clear and consistent understanding of the challenges and poten-

In order to understand how best to deal

tial

acquirer.

with this issue, it is important to bear in

into account the often intangible or hid-

Furthermore, understanding how the

mind that when making an acquisition,

den aspects of what makes each trans-

combined organisation will be different

companies buy more than the assets

In summary, many acquirers fail to take

pitfalls

facing

the

action unique. Taking a one-size fits all

from the current reality is also a rele-

and infrastructure of the target compa-

approach or ignoring the personal and

vant consideration. This process of

ny. Acquisitions also involve a series of

cultural element of the acquisition is

“acculturation” is worth investigating,

relationships and networks, between

likely to lead to missed opportunities

particularly for relatively large transac-

individuals, teams, departments, sup-

and an inability to maximise the

tions where effects of the transaction

pliers and clients. The challenge facing

expected gains from the transaction.

will be felt across all areas of the com-

the acquirer is to understand the key

bined organisation.

relationships which are likely to enable

Cultural Compatibility The failure to appreciate or manage the

the fulfilment of all the goals of the The compatibility or lack of it between

acquisition. This means that acquirers

bidder and target is likely to indicate

need to do more than identify the

Merger and Acquisition Integration

“stars” or key performers, it is also nec-

informal day to day aspects of the inte-

where individuals are fully aware of the

essary to understand the networks and

gration. By aligning the integration

culture and values of the target audi-

relationships which allow these individ-

team with the senior management at

ence and capable of forming a strong

uals to excel.

the target company, the acquirer is

collaborative relationship with key

maximising the chances of strong rela-

executives at the target company, com-

By identifying and prioritising the rela-

tionships and understanding develop-

munication is likely to be consistent

tionships and networks which allow

ing between the organisations.

and transparent on all levels.

Communication

Where Four Groups fits in;

key staff to perform, acquirers can identify where the most value lies in terms of people and resources. Efforts to maintain and develop these net-

Communication is another key factor

Four Groups has developed a set of pro-

works make the success of the integra-

often neglected or mis-managed by

prietary tools and processes which shed

tion far more achievable.

acquirers. Done well, it can accelerate

light on some of the more intangible

and strengthen the links between the

aspects of information gathering prior

Assembling the right team to lead

two organisations and increase the

to and during the integration process;

the integration

likelihood of the goals of the transac-

in particular providing systematic and

tion being realised. Done badly and it

quantitative information comparing

Failing to allocate sufficient resources

will have the opposite effect.

corporate cultures, assembling the

age the integration process is a further

By delivering a transparent and clear

identifying key individuals and relation-

or assemble an effective team to man-

most effective integration team and

cause of poor post-deal performance.

communication programme, acquirers

ships necessary to make the acquisition

An integration process that is under-

can address a number of key concerns

successful.

resourced and lacking commitment and

of personnel and avoid widespread

effort

from

senior

management

rumour and speculation from spread-

Four Groups helps the integration process on a number of practical levels;

becomes a burden on both companies.

ing. By being consistent and transpar-

For the target company in particular,

ent, it is also likely that the acquirer

this can lead to decreasing morale and

will more develop a reputation as

a poor perception of the acquirer.

being credible and trustworthy.

In addition to allocating sufficient phys-

In addition to having a formal commu-

Pre-deal Screening and Planning During the pre-deal evaluation phase, using Four Groups’ proprietary Merger

ical resources to the integration

nication structure in place, covering

Scan system enables acquirers to sys-

process, it is also necessary for the

areas such as new employment terms,

tematically compare the compatibility

composition of the integration team to

redundancies or any future relocation,

between

reflect the nature and demands of the

informal communication is equally

enables the potential acquirer to under-

specific acquisition. A team that suc-

important in ensuring a smooth inte-

stand the cultural gaps or similarities

cessfully completes the integration of

gration. Day to day contact with staff,

between organisations. The process is

corporate

cultures.

This

one company may not be exactly the

customers and suppliers should reflect

quick and simple to undertake and can

same team to successfully work on the

the strategy and rationale behind the

therefore be used to consider and com-

next project where a different approach

transaction. It should also acknowledge

pare a number of potential targets.

may be required. Organisations need to

the strengths and achievements of the

Merger Scan makes the cultural aspects

be aware of the need to combine indi-

target company. The quality of informal

of integration tangible meaning that

viduals who are process specialists and

communication is likely to impact on

the process becomes easier to plan and

capable of dealing with the nuts and

the speed with which relationships are

more manageable. In addition to iden-

bolts of the transaction with managers

formed between the two organisations.

tifying cultural similarities “merger-

who can execute a communication strategy suited to the target and other

scan” also highlights areas of incompatBy assembling an integration team

ibility or likely conflict. For relatively

Merger and Acquisition Integration

large scale transactions the use of

of the integration team with key indi-

“Merger Scan” will also provide infor-

viduals at the target company. By

mation as to how the culture of the

ensuring that these key relationships

combined organisation will change

are strong and robust, communication

from the existing scenario.

between the organisations will be clear and consistent. Furthermore, strong

Once the culture of a target company is

relationships will help develop trust

understood, it is then possible using

between the organisations.

Four Groups’ proprietary psychometric tool, 4G to identify and assemble the

Conclusion

optimum integration team to lead the project. By putting together a team that

In conclusion, 4G helps quantify and

understands the target company and

optimise the intangible elements of a

has strong levels of internal consistency

transaction. Starting with pre-deal

and communication, the likelihood of

selection and cultural compatibility,

strong mutual understanding develop-

through to retaining key personnel,

ing between both organisations is max-

building strong relationships between

imised.

both parties and creating the right integration team, 4G makes new and unique insights available to those

The integration process

charged with realising the value from mergers and acquisition activity.

Once a deal has been agreed and the integration process started, 4G provides significant elements of valuable data to help acquirers manage the integration process. In particular, 4G helps the acquirer understand where the key networks and relationships in the target company exist. This enables a far more effective approach to identifying key individuals and the people they rely on to get the job done. 4G also enables, acquirers to manage the communication process more effectively, in particular, aligning members

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Merger and Acquisition Integration

Footnote 1. http://tinyurl.com/69yuvp About Four Groups Four Groups has developed a new approach called 4G to understanding behaviour, relationships and culture. 4G provides its users with insight into personal characteristics, how relationships develop within teams and groups and how culture can be best defined and managed. 4G provides organisations with information on how best to deploy and optimise the performance of their people. It also enables preventative measures to be taken which prevent the more negative aspects of interaction and group dynamics such as minimising personal friction and reducing misunderstanding between colleagues. 4G represents a systematic approach to managing previously intangible aspects of organisational life. The methodology is easily replicable and can be implemented quickly and efficiently.