Integration Leadership
Facilitating Successful Acquisitions
Most acquisitions don’t yield the benefits expected. The Harvard Business Review puts the M&A failure rate at between 70 and 90 percent, yet management teams still push to acquire rivals and businesses operating in complementary, and sometimes completely different, sectors.
Flow Consulting has been involved in many M&A undertakings and we’ve seen what can go wrong. More importantly, we’ve developed a process to make acquisitions more successful. This reduces risk, gets the integration completed quickly, and maximizes ROI. Here’s what we’ve learned and how we can help.
What Goes Wrong
The main reasons for pursuing an acquisition are to grow, to cut costs or to bring relevant IP in-house. The details of each acquisition are different, but in our experience, reasons for lack of success usually fall under one or more of these headings:
Started planning too late
Misread target “sophistication”
Overloaded managers, and managers not up to the task
Trying to do it all, right now
Ignoring resistance
We’ve learned it’s vitally important to hit the ground running the moment an acquisition closes. That’s only possible though if a clear plan has already been formulated. In practice, what often happens is that momentum dips after the Letter of Intent (LOI) is signed, and drops further once due diligence is complete. Perhaps this is inevitable to an extent: people are tired and adrenaline levels drop once the deal is done. Yet without a plan it will be hard to implement the changes necessary for acquisition success.
“Sophistication” to us is not about style, subtlety or complexity, rather, it’s the leveraged combination of depth of talent, workload and pace. Sophistication therefore tells us how fast an organization can move and change. A common failing is to identify only the organizational superstars and overlook hidden sources of depth.
Realizing the expected benefits of an acquisition – typically, cost savings, growth, or both - means making changes. Every change, like moving production facilities or changing warehouse practices, is a project. Where we see businesses go wrong though is in assigning project management responsibilities to senior operational managers. This results in overload and missed targets.
A closely related issue is to select managers on the basis of availability and familiarity with the products and processes, rather than their capabilities. This too results in delays and even project failure.
Speed is of course important. Changes must be implemented as quickly as possible. Try to go too fast though and things will be dropped and done poorly. The challenge therefore is to understand how fast the organization can move, and set that as the pace.
Change, like that following an acquisition, is often uncomfortable. Some people will resist. There’s an understandable inclination to ignore these resistors, but that’s a mistake. Their influence can poison the culture and derail important projects. Instead, resistors must be identified and neutralized.
The 100-Day Plan
We’ve helped many businesses through the acquisition process and supported the successful integration of their target companies. In doing this we’ve learned what the critical success factors are and we’ve developed a process that addresses and prevents the problems listed above.
It all starts with planning, and planning should start the moment the LOI is signed. The Due Diligence phase is an ideal opportunity for data gathering and analysis, leading to what we call the “100-Day Plan”. Execution of this plan starts on Day 1, the day the acquisition closes, making it essential to start planning early.
When performing Due Diligence, Flow focuses on the critical business processes. This covers Manufacturing Field Services and Warehousing operations, plus Sourcing, Order Fulfillment, Engineering, Logistics, ERP/IT and Quality Systems business processes. The goal here is to assess each process area for maturity, scalability and risk, which will shape the 100-Day Plan.
Having gained an understanding of the current environment, plan to move quickly. Pick the best leaders from both organizations, create the organizational structure and establish leadership accountability for tasks and business performance metrics.
Our typical 100 Day Plan has the goal of delivering a step improvement in operational efficiency and increased capacity for growth within the first 6 months. Accordingly, a key element is a waterfall chart linking projects to specific savings. This should be linked to the incentive compensation of the leadership team.
Acquisition Integration – Delivering Results After Ownership
We’ve found over and over that most acquiring companies underwhelm the acquisition transition. By this we mean they struggle to overcome inertia within the organization. Our process for avoiding this, and so realizing the desired performance improvements, is best described as a “roadmap” with 12 steps or interim destinations. These are:
1. Guiding Principles & Investment Thesis
The start point in planning the acquisition, identify the benefits expected and how you plan on achieving them … labor redundancy, synergies and lower operating costs, revenue growth from new markets or cross-selling?
2. Strategy & Governance
This is the leadership role of assuring management best practices for team charters, issue resolution, risk management, communications, status reporting, and resource allocation.
3. Integration Training
Ensure the plan is understood, people are selected and know what is expected of them.
4. Charters
Every project within the 100-Day plan requires a formal charter. This tells the project manager what the goal is, why the project is needed, and how success will be measured.
5. Risk Mitigation
Risks occur across the entire spectrum of the new organization from people, to processes, policies and systems. Most companies don’t give this enough attention or resources until too late. Risks can be identified, prioritized, and managed.
6. Culture
Often hard to define or pin down, no two organizations have the same culture. Clashes and conflicts are inevitable when integrating an acquisition, and this can easily lead to delays and loss of key personnel. Engage HR as a strategic resource rather than an administrative service and enlist their support in addressing culture issues.
7. Communication Plan
This is a stressful time and in the absence of a clear and compelling story rumors, fears, and doubts will fill the silence. A Communications Plan helps stakeholders connect on an emotional level as to why the companies are merging and how this will impact them.
A good plan focuses on goals and desired outcomes. It identifies target audiences, selects appropriate communication methods, and assigns responsibilities and timing. You can’t over communicate.
8. Staffing & Retention
Change is unsettling and some people in the acquired business may choose to pursue their careers elsewhere. While accepting this is inevitable to a degree, and perhaps even desirable, a thorough people assessment during the due diligence phase, combined with the active involvement of HR can prevent the most damaging consequences. Leaders should also be aware of the risk of burnout and avoid overloading managers with tasks and projects.
9. Project Planning
The Integration Project Plan is a set of documents outlining how and when major resources and processes of the acquired company will be combined in order to achieve the investment strategic goals.
10. Implementation
Details depend on the type of business and operations involved. For many, implementation projects will include topics such as Footprint Analysis, to identify opportunities to combine or merge resources, new layout design, and facility consolidation.
11. Lessons Learned
Executive teams should always reflect on what went well during integration and what they’d do differently next time. This is especially important for private equity acquirers who plan on repeating the exercise frequently.
12. Optimization Plan (the next phase of ownership)
Once the 100-Day plan is complete there is still more to do. Leaders should continue seeking additional ways to wring benefits from the integration of two operations.
Experienced Acquisition Integration Specialists
We have helped many companies through this integration process. Our experience is that following the roadmap detailed above reduces integration risks and greatly improves acquisition outcomes.
Our goal each time is that when the integration is complete:
The leadership team has combined the best talents from both companies and is stronger than each company before the integration
Leveraged costs savings are significant, with a clear understanding as to why these costs could be reduced
The combined entity is stronger, more agile, and a higher performing business.
These results translate to increased margins while freeing-up cash for debt reduction, a more capable team that has learned to make improvements quickly, and long term EBITDA growth.
Additional Services Available From Flow Consulting
Integrating two previously separate companies involves a host of individual projects. We have the background, expertise and specialists to support these. Our services include project management, total footprint analysis, and consolidation of previously separate facilities.
Consolidation includes activities such as production layouts, systems integration, warehouse mergers and streamlining of logistics activities. These and more are usually needed to bring about a successful post-acquisition integration.
Now in our third decade, Flow Consulting seeks to help businesses streamline and improve operations. Expanding from a focus on Lean Six Sigma, our team now offers LeanSigma for Service Processes, Leadership Development, Project Management, IT Operations Support, Supply Chain Management and Chemical Lean Manufacturing. Please contact us to talk about what we could do for your business.
