An estimated 80 per cent of mergers and acquisitions fail but many pitfalls can be avoided by forming a robust integration plan before completion and having a clear idea of future direction.
Any company pursuing an acquisition needs a tailored M&A team. It must include specialist technical expertise relevant to areas of desired growth, tasked with finding and progressing acquisition opportunities. A technology roadmap and business development strategy that identifies technologies and products to support the company's growth is crucial: this should provide direction to the search for suitable companies.
Identifying the right prospect is easier said than done. e2v operates in a niche sector and it is always challenging to find companies whose technology and capability complements its own. Also, the company needs to be successful within its niche to become an attractive option that would bring additional value to shareholders.
The company's acquisition of Gresham Scientific Instruments for £5.1m in August 2005 and, more recently, of Atmel Grenoble for £76m in July 2006, show just how important flexibility and planning are in the acquisition process. Both purchases strengthened the company's position as a global provider of specialised electronic components and sub-systems and will significantly strengthen sales across the group.
It is not possible to leave integration to chance. A proactive strategy must be in place before the deal is completed, which details future processes and necessary actions. Ideally this plan will be created by a dedicated integration team drawn from the key disciplines in the company.
e2v's two most recent acquisitions were very different both in their size and effect on the resulting larger group, and highlight some of the commercial and business issues involved. The Gresham facility had been working as a successful, standalone unit before the acquisition. e2v's strategy was to maintain the stability, culture and structure of the organisation by supporting the existing management in delivering the growth plan for the business.
Atmel Grenoble was very different and not just because of the value of the company, which took e2v's turnover from £112m to circa £180m. Grenoble, culturally, was used to having a US parent company that provided support to many business functions, from IT to sales and distribution.
The integration plan for Grenoble had to be created pre-acquisition and include a support package ready to be put into practice immediately after completion.
To ensure a smooth integration process it is vital to be aware of the sensitivities surrounding a company. As Grenoble was a French company, e2v had to work with the site works council, which was kept informed of all aspects arising from the acquisition. This was undertaken in close collaboration with the parent company to ensure consistent communication and avoid possible delays in completion.
Bringing the management of the newly acquired company into discussions about the future direction of the resulting larger company is very important. Not only will they be able to offer invaluable insights into the company and markets but, if they support the acquisition, integration will be much easier.
One common myth about acquisitions is that they always result in job losses as rationalisation occurs. With the previous management involved in decisions, they will be best placed to address concerns with the workforce and reassure them about the future direction of the company.
Rationalisation of roles and functions must occur post-acquisition and this can mean that employees change responsibilities, removing duplicated roles. In e2v's experience with Grenoble, the fact that the business was mainly complementary and the previous parent provided resource in many areas meant it actually had to recruit to replace these resources.
Whenever pursuing an acquisition the key components to consider are: take time to identify a strong prospect that is a good strategic fit; ensure you conduct robust due diligence; make sure you create an integration plan beforehand for post-completion implementation.
It is also critical to have the management of the business attuned to the transition and future of the business. The parent company must be open to the reality that they can learn from the business it has acquired. Finally, ensure investor and customer support for the strategy.
Peter Knowles is commercial director for UK-based technology group e2v