You Bought It, So Don’t Break It:  Five Best Practices in Post Acquisition Integration
by A. J. Schuler, Psy. D.

For all the careful planning that goes into making a corporate acquisition - the financial due diligence, the outsider’s review of management, the analysis of compatibility with a business plan - there has been too little attention paid to the process of making an acquisition work well once the deal is done, especially among middle-market firms (those with annual revenue anywhere from $50 million to $750 million).

In the wake of the very successful, high profile operational merger of H-P with Compaq, allowing H-P to realize $3 billion in savings within nine months of the deal (Wall Street Journal,  “Elaborate Planning Helps Keep H-P on Target,” April 28, 2003), that’s beginning to change.  H-P significantly advanced the art of post acquisition integration, and firms that want to succeed had better learn their lessons well in this competitive environment if they, too, want to succeed.

Why do firms resist putting resources into the development of a top notch post acquisition integration plan?
For a variety of reasons.  For one, they see the area as too “squishy.”  Anytime someone starts talking about traditionally soft subjects like integration and “culture,” the eyes of the financial and operational wizards who conceived of the deal in the first place typically glaze over. But though middle market firms will not realize $3 billion in operational savings, as H-P did, they will achieve savings of scale commensurate to the size of the acquisition if they do their jobs right. On the other hand, by doing the job sloppily, they can fail to achieve the strategic advantages that prompted them to make the deal in the first place, wasting the resources devoted to the entire acquisition process. As a result, more operational executives are beginning to pay attention to the so-called “soft” issues, especially as better quantitative methods develop to help them perform post acquisition integration more efficiently.

Another reason middle market firms may do post acquisition integration poorly is because they believe that the scale of their deal is small enough that they can handle it all without much fuss. Some have done smaller deals in the past, and new, larger deals seem like something they can handle.  But the complexity of post acquisition integration does not increase in linear fashion, commensurate with the number of new people brought on board - the complexity increases at an increasing rate with the scale of the deal. So middle market firms fall into a trap - they get off to a bad start for their first significant strategic acquisition because they “don’t know what they don’t know” yet. 

That’s why we see so many acquisitions falter - not because the underlying strategy that prompted the deal was inherently bad, but because the execution of the integration process was slapdash, sloppy and inefficient. And when that happens, it can be very hard to undo the damage that comes from a bad start.  H-P wisely avoided this by spending months studying what made past large scale acquisitions fail, and the overwhelming lesson its leaders learned was to plan well and plan thoroughly for the integration phase - or face complete failure.

So what’s a self-respecting, middle market company to do?  Obtaining consulting support is an important option, though not all the consulting firms in this area are created equal, and it can be hard to determine which are better at delivering invoices than results.  But no matter what kind of expertise your firm may seek, here are five best practices for successful post acquisition integration that can get you started on the right foot:

1. Start Planning Early
The problem with getting a late start, or of waiting until the deal is officially enacted before making significant operational plans, is that your acquired company drifts while important decisions remain up in the air, and performance therefore deteriorates.  Even worse, some of the most talented people in the acquired company will bolt for greener pastures, reducing the value of the deal, since they are precisely the ones most likely to have other viable employment options.  These results will be noticeable in future earnings statements but are often dismissed as inherent costs associated with the integration process - though they don’t have to be, as the H-P case study proves.

For deals with significant strategic value, or enough size to add meaningful new operational complexity (perhaps involving as few as 50-100 new staff or more), some degree of expert support is advisable, typically for much less than the investment already made in the process of finding, studying and selecting the right acquisition partner.  What’s more, the marginal added value of the right kind of post acquisition integration support is well worth the investment.  To reap the benefits of such an investment, the best time to begin preplanning is when the parent company management team is 80-90% certain the deal will go through.  That way, the integration planning process can hit the ground running during the interim phase, starting when the deal is announced and continuing through the time it is put into effect.

2.   Pay Careful Attention to Leadership Selection
Parent companies preview management in the acquired company, but seeing a preview is not like seeing the whole movie. H-P and Compaq built a careful partnership, starting at the top, between both companies to make critical executive selections as far in advance of the deal as possible, and then announced their decisions shortly after the deal went through. In contrast, most acquiring companies don’t build this kind of solid partnership, and therefore lack an insider’s knowledge of the leadership team of their new arrival.  The lack of such knowledge often causes delays in decision making, leaving the acquired company in an unproductive limbo that bleeds talent, time and resources before the new entity can ever find its operational footing.

But even building a good operational partnership can be problematic - two different corporate cultures may have difficulty meshing effectively, (most executives won’t have trouble supplying their own high-profile examples of this problem!).  For this reason, it can be a very good idea to take the top leaders of both companies - not too many - through a formal executive assessment process. Why? Because doing so can provide quantifiable data about the priorities and cultural tone of the parent company as a baseline, while also evaluating personal compatibilities that can start the process right away of bridging two operational cultures.  Doing so can also provide insurance against discovering later that some people in the new company will just not be compatible after all, or that they have fundamentally different agendas and values going into the integration process. Even worse, one well placed bad apple, from an ethical and legal point of view, can cost a lot of time and money down the road if not identified early.

The investment to be made in this kind of process is minimal given the “insurance” and operational value it can provide, though let the buyer beware:  there are many systems out there, and they are not all created equal. Multiple choice-type assessment batteries are the least expensive but easiest to fake and least reliable, in my experience.  Assessment centers provide good, reliable information but at a very high cost.  My bias is toward structured interview processes for their price/value return on investment profiles, as they can give data as reliable as those derived from assessment centers at a fraction of the invested time and money.  But whatever you do, if you are acquiring a company, start as early as possible to get an insider’s knowledge of the leadership of the new company in order to avoid wasted time, and loss of acquired asset value, during the integration phase.

3.   Get an Insider’s View of Knowledge Networks and Information Flow
Executives know perfectly well that, within their own companies, the organization chart tells very little, in the end, about who talks to whom to accomplish what. It tells very little about who holds genuine influence over opinion, the loosening of resources to accomplish work, the degree to which the organization is riven by feuds, rivalries and blockages in communication that generate inefficiencies and spawn cumbersome “silos,” etc.  And the leaders of the company you acquire may not be very good sources of this information, either because they fear for their own jobs, because they have their own political agendas or because they are just enough out of the loop that they don’t know what really goes on. And yet, in order to effect a successful integration process, the parent company needs this information.

The need to capture this information is even greater when the value of an acquisition depends more highly on soft or intellectual assets.  More and more, companies are aware that not only individuals, but groups of individuals combine to create uncommon value in the development of technologies, scientific research or even productive service and manufacturing processes that remain innovative, effective and profitable.  A parent company may, by intuition and luck, generate the right transition implementation work teams that will provide necessary inside intelligence, though given advances in emerging quantitative methods, a reliance on intuition and luck is becoming obsolete.

The technology and processes exist today to capture much of this information about communication channels and knowledge transfer in a quantifiable, timely and affordable fashion, as the developing field of social network analysis finds greater applicability in the business world. A few talented researchers have been crossing over into the corporate world in the last few years and learning how to create value added network analytical services, according to the dictates of the marketplace - a movement that gained momentum in the wake of the 9/11 attacks in the United States. At that time, the importance of understanding the organic, underlying structures of informal, nonhierarchical networks became more critical, and government investment in these technologies served as the tipping point for their wider application and acceptance in the business world, often for post acquisition integration work.

4.   Develop Clear, Coherent and Timely Communications Strategies
BB&T does this well, as its organization has become expert in making and implementing acquisitions efficiently and effectively. From the first day a deal is announced, BB&T will begin by sending employees of the acquired company a letter at home informing them of the deal and describing some basics of the process through which they will subsequently learn more about the post acquisition integration process.  Their message is clear, timely and part of a multi-pronged campaign that will include direct mail, email, meetings, and “town hall” type orientation sessions - all sequenced through a preexisting plan and designed to minimize confusion, anxiety and inefficiency throughout the integration process.

Successful communications plans also include explicit, interactive feedback systems, through work groups, task forces, etc., so that members of the “new” organization can learn what it means to be a part of the new company.  For example, H-P required each operational manager to conduct a half-day session, with the support of human resource staff, on the differences between the two previous company cultures.  H-P had collected survey data that had defined various differences in these culture that could affect operational coordination. For example, the data showed how H-P staff typically used voice mail while Compaq’s people typically used email, so that people from either side did not have the same ideas about how to collaborate, leading to confusion and misunderstanding.  Seemingly small organizational “habits” like those can lead to larger, festering inefficiencies when left unidentified and unattended.  According to The Wall Street Journal and to my own sources within H-P, these “culture” meetings, integrated into the operational reporting system, went a long way toward facilitating the effective, two way communication processes that helped H-P realize its whopping financial and operational efficiencies.

5  Dedicate Adequate Resources to the Transition Management Team
This may seem obvious, but very often, companies will assign a top operational executive or COO to the job of managing the integration process without freeing this person of other daily responsibilities. The results are seldom good. Firms that learn by getting burned know that they will have to assign a highly talented executive leader with excellent strategic and interpersonal skills to oversee the post acquisition integration process full-time, with sufficient support and administrative staff to get the job done. The failure to provide adequate staff and budgetary resources to the integration process is perhaps the single most common mistake companies make following the completion of a deal.  Often, it is as if parent company executives believe that the real work was done when the legal and financial due diligence process was completed, when in fact the work at that point had just begun.

There are many other important considerations to take into account when developing a successful post acquisition integration program, and many of them will be covered in my forthcoming book, “ChangeRx:  Prescriptions for Successful Change Planning and Implementation - A Practical Guide for Leaders,” anticipated for release in late 2005 (for more information, click here). But these five best practices will, if implemented properly, significantly reduce the risks that a corporate acquisition will become a financial failure, and go a long way toward helping successful companies achieve the projected strategic and operational efficiencies intended when a decision is made to acquire a company.

Copyright (c) 2003 A. J. Schuler, Psy. D.
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Dr. A. J. Schuler is an expert in leadership and organizational change. To find out more about his programs and services, visit www.SchulerSolutions.com or call (703) 370-6545. 

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