Link Management Group = Consultancy, Interim and Project Management

Cedarwood Solutions Ltd

Some facts

Although mergers and acquisitions are welcomed, even encouraged by analysts and investors the facts show a rather concerning reality. A KPMG survey in 2006, entitled “The morning after”, was the latest in a line of surveys to suggest that mergers and acquisitions do not offer any guarantee of adding shareholder value.

Their data showed that two thirds of the deals they analysed provided neutral or negative impact on value. As mentioned this is not new, back in 1996 a Business Week study showed that of 150 deals of $500m plus completed in the early nineties, about half actually destroyed shareholder value.

The other reality, with which most observers concur, is that when shareholder value is created, it is usually through the effective implementation of the merger not the deal itself and the early steps of the transition usually set the outcome.

So as the champagne bubbles celebrating the deal subside and the hangovers clear, the real challenge begins and if the work only begins at that point it may already be too late. In many cases the task falls to managers who have not been through such an experience, moreover the company’s appetite to pay a multitude of advisers through the deal stage will often evaporate with an assumption that implementation is “what we do”.

 
Getting it right

The reality is that the causes for failure to create value vary from case to case and rather than try to list these we think it is more valuable to focus on ten key principles for success.

• Many companies underestimate the size of this challenge and set up transition teams with members doing this in their “spare time” and expect the organisation to handle the load “for a short period”. This often leads to delays in implementation and either impacts the “day to day” business or slows critical integration projects.
• The implementation plan should be in place before the deal is completed so that the transition can begin immediately with the most critical projects already defined and prioritised.
• Use external help with care to bring expertise and manage peak loads (see below).

• Planning is important and the many tasks needed must be identified. But don’t allow excessive planning and endless lists of projects to confuse the organisation or slow the pace.
• It is critical to prioritise and drive through the chosen projects to completion. The prioritisation should be rigorously driven by the economic value drivers for that business.
• Meeting or exceeding financial expectations will allow increased flexibility and probably increase time available to management and the organisation. (Avoids time consuming stakeholder interaction and project rework.)

• Keep teams small.
• Limit the number of teams operating at the same time. (Focus!)

• Maintaining customer relationships and service levels and securing key suppliers is critical to profit at a time where there is a high level of internal work and turmoil.
• Prioritise and share the load between the senior managers.
• Remember those in the organisation who have the most regular contact with customers and suppliers – make sure they are informed and “on side”.

5. Choose the right people quickly, align roles and responsibilities and put reward mechanisms in place that support the economic value drivers and the creation of shareholder value.

6. Proactively manage communications to secure support from stakeholders.

• Avoid silences – they are usually filled with assumptions of the worst outcomes.
• Avoid material with limited content and attempts to “sell” the changes.
• Recognise firstly; that the most important question for everyone is “What does this mean for me” and secondly; that each person will be thinking about that question differently. (i.e. What matters to them is probably not  what matters to you.)

• Circulating or displaying the new “Mission, Vision and Values” will not impact culture.
• Drive it through early and significant actions, leadership behaviour and the appointment of role models.
• Again, it should fit with the things that drive profit for this business.
• But, don’t allow “culture change” to become a project in its own right.

• Put the financial reporting and management reporting systems in place quickly.
• Use leading indicators (e.g. service levels, daily sales, etc) to guide actions. (Recognise that many financial measures are lagging indicators, reducing speed of response to problems.)
• Set clear targets as soon as possible and measure and report progress against these objectively.

9. Identify the key assets before the deal is complete and ensure they are secured through the transition. These might include: stocks; equipment; relationships or people.

10. Perhaps most importantly, lead the process of transition.

• Ensure the top team is very visible and model the behaviour you want the organisation to display.
• Ensure clarity of direction and make any decisions quickly. (Do your homework before the deal is complete.)
• Recognise and reward successes and the behaviours you want to develop.

While we believe that these ten principles will lead to a successful transition we would again stress that each case is unique, the economic value drivers will be different (e.g. top line growth versus cost synergies) and the emphasis on each of these principles will change. The analysis and planning work you do before the deal is complete and in the very early stages of the transition is therefore critical to success.

Using external support

As mentioned earlier the responsibility for the integration often falls to managers who have not been through the experience before. (This is not true in the serial acquirers who might have the integration process well tuned but such companies are in the minority.)

The choice of external support is important. Allowing large numbers of consultants to take over the process will usually lead to poor ownership of the proposed outcomes and is essentially a dereliction of the leadership needed. In contrast the “go it alone” approach often will impact speed negatively and probably effectiveness.

Our experience suggests that companies should actively use a limited number of consultants with the right expertise. For example: use experienced senior executives at a high level to provide advice and guidance directly to the Board or transition team; use specialists in areas such as pensions and use extra hands on projects (e.g. IT projects) to manage peak loads.

In all cases the Board or transition team should pay close attention to the overall use of consultant support. Have a consolidated view prepared and review it regularly. So the message is use external support – wisely.

Further Information

Nigel Bell
Director
Cedarwood Solutions Ltd
www.cedarwoodsolutions.co.uk

Click here to return to Nigel Bell