Succeeding at Acquisitions
By GPMIP Associate Partner, David Sneijder
After more than 20 years of business experience, 15+ years within Post Merger Integration (PMI), the time came to make the jump into consultancy. In the future, I will be sitting at the other side of the table which makes this the perfect moment to reflect back and give some insights into the biggest lessons I lived through during this period.
Some of the findings are easy/no-brainers – almost open doors, but still, I have seen organizations forgetting to apply or consider some of the lessons in the execution. There can always be a reason for (not) doing something as long as this was a conscious decision to divert from the standard direction.
Smaller acquisitions take more time
When a large company acquires a small one, it requires a specific mindset and approach from both sides during the whole M&A process. In some cases, the team visiting the acquired company (“the target”) to “welcome” them was even larger than the overall size of the target. This was felt as overwhelming and in some cases a bit threatening. Just having been taken over can already give an unsettling feeling.
On the same side of the coin it also explains the possible resource shortage (to participate in workstreams) during integration within the smaller target as most people have two or more different functions compared to the larger company where you see that there are at least two or more specialists per workstream available.
Looking at the definition of large and small acquisitions, this will differ per company. To me an acquisition of a company of with a revenue between Euro 1M and Euro 200 M is small(er).
- The mother company could integrate quicker, but resources are constrained and business continues as usual. Keep this in mind when scheduling the integration plan. Smaller acquisitions need more time and a slower pace in integrating.
- The goal is to always maintain day-to-day business continuity while integrating in parallel. To be successful, the integration approach should focus on integrating those areas needed to achieve the integration synergies and strategic rationale.
- Smaller acquisitions can also be a drain for your organization. As the overall value of a smaller integration will be less impactful (value wise) it will get less attention from top management. Still, the time and energy spent on the integration will almost resemble the effort of a large acquisition and, as earlier mentioned often has to be executed with fewer people.
Early cultural insights increase your success rate
The cultural side of an acquisition is a broad playing field. In GPMIP’s upcoming book “Cross-border M&A”, to be published in 2016, two chapters are dedicated to the subject. Still, the cultural aspect, combined with the HR approach taken, is one of the most important success factors in making a deal succeed.
The cultural consideration already starts early on when discussing the intended rationale behind the acquisition. During pre-close, try to answer the initial culture assessment.
| Questions | Assessment |
| Identify the differences between the current cultures. What are the implications for the integration process? Please describe the cultural differences that in your view will impact the integration process most and how. | +Both future Acquirer and Target Company focused on long term employment and very much company oriented-Future Acquirer is focused on process, but often the processes are bureaucratic. Target Company is more entrepreneurial-Target Company has flexibility in arranging shared services around business units, future Acquirer is much more standardized |
| Given the identified differences between the current cultures and the desired future culture, what are the implications for getting to the desired future culture? | Enablers Proximity of management to their direct reports Have similar desired outcomes, i.e. speed, teaming, learning, agility Streamlined organizational design with clear responsibility and accountability Barriers Resistance to change from what has been a winning formula will cause hesitation and conflict Lack of open dialogue at top levels of organizations |
The cultural assessment will be combined with the acquisition rationale. How much do we need to activate the human capital/culture to realize the acquisition rationale?
Possible acquisition rationales:
- “This a more entrepreneurial company which is able to move faster than our company, a lot of innovations” – Lot of buy-in necessary from target resources, often there are key resources/teams which are pivotal. Large involvement of Sr. management and HR from the acquiring company
- “We need the sales channels in a particular country, our products/services in their channels” – Functional buy-in necessary from target. In this case an early assessment of their sales processes, sales capability and customer base. Explain the Integration plan as soon as possible. This way there will be a common understanding which will enable a smoother transition
- “We only want their IP or a particular chemical process” – Only a small part of the company is interesting, could be hostile take-over and often the cultural assessment does not need to be made.
Start with your acquisition rationale and then combine it with the cultural assessment. Once you have the weight of importance of your cultural assessment and planning, you can determine whether the target is a fit to your company. Never underestimate the importance of getting the right people on board. I have seen integrations blocked, moving slowly without the realization that part of the acquired workforce doesn’t see enough perspective for themselves. Therefore, they are not willing to cooperate and integrate.
Sometimes I am asked whether an ill-fitting culture will lead to an unsuccessful integration/acquisition. This is something I cannot resolve with data, as integration failures are often due to several factors. What I can say is that in successful integrations, a great deal of attention was given to the people, behavior and governance (values).
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