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Navigating the Post-Acquisition Minefield
By Mark L. Feldman, Managing Partner, The Five Frogs Group
Doing the deal is no longer an art. It’s a drill - an exercise in financial and legal gymnastics. Over the last half-century, the same basic variables has been twisted and stretched through hundreds, perhaps thousands, of permutations. A wealth of deal making knowledge has been created. Yet most deals still fail to create value for shareholders. Why? The real art of the deal lies in the post-merger transition - and there are so few artists.
Once the deal is closed, time is critical. There are more questions than answers and there is more to do than time allows. Energy is diverted to internal matters, distraction rises and margins suffer. Speed of execution is critical. Agility is essential. There is no value in prolonging the post-deal transition. No one doubts this.
Everyone charged with managing a post-deal transition wants to get it done and get back to business. The only thing between them and success is the post-acquisition minefield. Navigating the minefield can be tricky unless you know how to identify the mines.
Entering the minefield
Landmine #1: Obsessive list making
Within days of announcing a deal, the lords of infrastructure begin compiling encyclopedic lists of things to do. With each day more detail is added, making the master list becomes a mind-numbing, morale destroying, ego deflating, knee –buckling, litany of things to do. It consumes 50 typed pages backed by 10 linear feet of Gantt charts – and seldom is a revenue driver to be found.
List-driven transitions are prolonged transitions. They dilute resources, undercapitalize important initiatives and sub-optimize results. By giving administrative detail and gratuitous cost cutting the same priority as revenue drivers, market communications and other value drivers, they retard progress, frustrate the work force and misallocate resources.
Disarming the mine: Savvy acquirers sort their lists on two criteria -- financial impact and probability of success. They identify the 20% of actions likely to drive 80% of the economic value with the highest probability of success. All available resources – time, management and capital -- are allocated first to these value-creating priorities.
Landmine # 2: Creating a Planning Circus
There is an old yachtsman’s creed: “if you can’t tie good knots tie a lot of them". Many acquirers apply this notion to transition teams. Out of some misguided sense of representational democracy, they form dozens of teams from both organizations to coordinate post-deal decisions and activities. The teams are organized into a Byzantine structure that superimposes its own mass, complexity and inertia on the transition. It slows progress and dilutes accountability.
One regional bank merger, created a 17-member executive transition team. This group oversaw 24 functional teams, averaging nine managers per team, 48 sub-functional teams, averaging six managers per team, and eight cross-functional teams with 12 managers per team. After subtracting overlaps, nearly 500 hundred managers were involved. The teams met over a ten-month period after the deal. The opportunity cost, productivity losses, delays, and sheer expense of coordination escalated operating costs, stalled consolidation, and fueled confusion that resulted in a substantial loss of depositors.
Disarming the Mine: There is a difference between an agile fleet of teams and a bloated armada. Experienced acquirers build transition teams around the value drivers – the 20% of actions likely to drive 80% of the value with the highest probability of success. Teams are kept small in size, as a team of over five people has difficulty simply scheduling its next meeting.
Landmine # 3: Content-free Communications
After the announcement of a deal, most communications tend to be 99% content free. They consist primarily of hype and promotion. Consequently, there are always more questions than answers.
Imagine you have acquired 1,000 employees. Assume they feel relatively secure and spend only 30 minutes a day wondering, speculating and trading gossip with others about their future. That comes to 500 hours of lost productivity per day, 2,500 hours in a five-day week and 10,000 hours a month for every month you leave them uncertain.
Communication is a stabilizer. It keeps people focused and energized rather than confused and perplexed. When your stakeholders -- employees, customers, suppliers and investors -- spend time worrying and wondering, they are not producing, buying, supplying or investing.
Disarming the mine: Right thinking acquirers are concerned about employees, customers and business partners. They identify the needs, concerns and interests of all significant stakeholders. They build an aggressive communications plan around their findings.
There are a few basic rules: Communicate as much as you know, as soon as you know it. Tell the truth and tell it first. Communicate consistent messages continuously, repetitively and through multiple channels. And, above all, no secrets, no surprises, no hype, no empty promises.