Buying another company or setting up a merger is generally a long, hard and costly process. But after the books are examined, the price set and agreement reached, the hard part is just starting. The post-acquisition phase needs to be managed carefully if the two businesses are to successfully become one.
Like any other big change, integration needs to be planned in advance. Ideally, the plan should be drawn up before the merger actually goes through, but it must still be flexible enough to cope with any changes which have to be made. And each objective on the plan needs to have someone directly accountable for making it happen.
The first item on the plan should be communication. `How people communicate on day one makes a huge impression,’ says Dr Nancy Hubbard, director of accountant KPMG’s acquisition integration unit. `You have one chance to make a first impression; get it wrong and you’ve blown it. But surprisingly, most people don’t have a communications strategy planned for day one.’
Failure to communicate can breed negative rumours among suppliers as well as staff. Silence is often taken as confirmation of the rumours. `If you don’t let suppliers know that they aren’t threatened, they might start bad-mouthing the company,’ says John Nutton, partner at RSMRobson Rhodes. `And employees who don’t know what is happening are more likely to go on strike.’
Putting fears to rest is an important part of the communications strategy. Some fears may be justified, especially if the merger was undertaken to save money. Suppliers offering poor value for money could find contracts under threat, while even those that are operating efficiently on low margins could find mounting pressure from the greater purchasing power of their newly-enlarged customer.
`Very rarely do acquisitions bring good news to suppliers,’ says Hubbard. `The merging companies can and will exploit their purchasing power. Looking at procurement soon after an acquisition can often bring a quick win.’
Once a company has been taken over, the usual expectation is that its own managers, employees and suppliers are under threat – whereas those in the new parent company have nothing to worry about. A merger between companies of different sizes can breed similar fears in the smaller of the two companies. But the best mergers take the talent from both sides, and at board level create an equitable share of the best from the two companies. Of course, employees in the smaller company will not necessarily be out of a job, though most will worry about this, with middle management feeling the most exposed.
Common sense would demand that the company draws up an inventory of staff skills, works out which posts are the most important for the merged company, and divides them on the basis of who can do the job best. But in reality office politics and cronyism can get in the way of such a straightforward approach – and even if they do not, people will think they do.
One solution is to outsource this element of the process. `If the organisations are highly political, it can mitigate that fact,’ says Hubbard.
The next priority should be to start realising some of the benefits of the merger. `Things are often allowed to drift,’ says Nutton. `If the deal was based on rationalising production facilities, and you fail to drive those benefits through, then you have paid too much for the business.’
In mergers where two parts of a company are brought closer together, there is often a gap between the benefits conferred on each set of employees. Most merged companies simply hope that the two halves never talk to each other. But a more ambitious firm can harmonise benefits at the higher level in exchange for productivity gains.
Another issue is the difference between corporate cultures, which is where many mergers come unstuck. The classic example would be a big bureaucratic company like IBM buying a smaller, more entrepreneurial rival. The rule should be that the most effective culture, rather than the culture of the largest partner, should win. A more touchy-feely firm may look less businesslike but could have better staff retention rates.
Most of the legal and technical risks should have been dealt with in the pre-merger, due diligence stage; but there is always the chance that something could go wrong.
As an example, Nutton talks about a former client which bought a firm dominated by one man. `Everything went well until the owner of the acquired company dropped dead. He knew everything about his company, and took his knowledge with him. You need to make sure risks like that are insured against.’
And if the merger fails? `The accountants get sued,’ he says.