Mergers and Acquisitions: What to Do After You’ve Signed the Deal
You’ve closed the acquisition deal. Now what? Many companies sign on the dotted line and immediately begin overhauling systems, operations, HR, customer relationship functions, etc.. But, if you want to secure a high return on your investment in this new company, you would likely benefit from a more patient, strategic approach when it comes to the early days of post-acquisition integration.
The aphorism “Act in Haste, Repent at Leisure” would seem to have been almost custom-designed for the case of post-acquisition integration.
As an M&A executive at serial acquirers Textron and ITT, I’ve been on both the selling and buying sides of merger and acquisition transactions. This, and having personal accountability for the performance of acquired businesses, has given me a keen insight into what steps can be taken to ensure a smooth transition and what early mistakes can cause an acquisition to be painful for everyone involved – from the acquirers, to organizational leaders, to the rest of the employees.
And, while no merger or acquisition is perfect, there are some actions many companies make during the process, with one of the most common being the immediate implementation of a 100 Day Plan. Explore this article to learn why you should defer making 100 day plans and take a more strategic approach to your corporate or private equity acquisition.
The First 100 Days
Once you’ve acquired a new company, a common tactic is to walk through the door and immediately start making sweeping changes. The top priority is often to demonstrate a high return on your investment as quickly as possible. With that objective in mind, though, it can be critical to develop a strong foundation of knowledge and trust within the acquired company prior to making any significant changes that may actually make it more difficult to reach your intermediate and long term goals. Resist that instinct to rush to judgement, and instead spend your first 100 days getting to know the company better.
I’ve found that an acquisition implementation best practice is to put your initial 100 Day Plan in a desk drawer and forget about for 3-4 months. Use that time filling in knowledge gaps from due diligence, and there will always be some. Get to know the company inside and out. This is valuable time to identify what works and what doesn’t, and who works and who doesn’t. You can, and should, better acquaint yourself with clients and top performers in every department. While you’re assessing the people and practices, the people will also be assessing you.
While some immediate changes are inevitable – integrating HR processes, adopting IT systems, etc. – avoid sweeping strategic or tactical changes. When you introduce numerous changes in the first 100 days, you lose the opportunity to identify the “Current State” positive aspects of how a company is operating… What its doing well, and where it needs to improve.
Remember: “Act in Haste, Repent at Leisure.”
The Second 100 Days
Once you have a thorough understanding of the organization and who, and what, is the key to its performance, you’re better equipped to introduce significant, forward-looking change. The second 100 days of your acquisition are the best time to start implementing initiatives that you believe can lead to improved growth and financial results. By turning the traditional 100 Day Plan into a 200 day plan, you’ll give your new employees more time to adjust and buy into the ownership transition, and settle into their own place in the new organization.
Research has shown that a substantial drop in employee engagement is a major issue that companies face after an acquisition. Hesitancy and even fear on the part of the employee is easy to understand. When the sale process begins, most employees are quick to develop a range of worst-case scenarios for their own jobs, and for the future of the people they work with that they consider friends. According to a recent AON/Hewitt study, employee disengagement increased by 23% after a change in company ownership, and it took three years for engagement to return to previous levels. Disengagement at those levels and for such a long period of time can be expected to cost your company a lot in lost productivity, eroding the customer experience and potentially impacting revenues.
In addition to introducing change gradually, you also need to carefully and consistently communicate the need for, and benefits of, change to everyone in the organization. Take a transparent approach to discussing and preparing for change. By turning your 100 Day Plan into a 200 day plan, you have more time to create timelines and milestones with the input of your new employees, and allay their fears about what’s coming next.
200 Days and Beyond
Many acquirers focus like a laser on financial management and give scant attention to organizational leadership. To ensure the company you have acquired truly has a strong foundation on which to thrive, you need to work to build productive relationships with management AND staff, so planning for the future has a basis in organizational capability and capacity. Deeply understanding capability and capacity in any organization is a challenge, but is required if the next step in the Integration Process (Setting a Compelling Vision for the Future) is to work
Setting a compelling vision for the future of your acquired company should be the top priority for any new owner. Communicating that vision and getting the organization excited about it is the key to the ROI the acquisition will eventually produce.
In the past after acquiring a new company, I’ve held town hall meetings, asking employees to voice their questions and concerns about the acquisition in general and what it means for the company, their co-workers and for them, individually. While this first dialog certainly didn’t alleviate all the fears in the room, it did demonstrate to employees that their new employer respected their opinions and intended to build an exciting future based upon the company’s past successes. Those meetings were followed by subsequent group and individual discussions to reinforce the message that the Sky was, in fact, NOT falling. Offering transparency and giving employees a role to play demonstrates trust in your employees, and they’ll respond with having more trust in you.
Communication is a two-way street and it’s important to demonstrate to employees that they’re valued members of the team. Evaluate your approach to running your new acquisition, and choose to be an organizational leader, instead of just a financial manager.
As you enter into your next private equity merger, be mindful that Timing Is Everything. Take the time to lay a foundation of trust with your new team, and communicate the importance of their individual and collective contributions to the company. When you do, you’ll be much more likely to secure a high return on your investment, and maximize your revenue stream.
Do you want to learn more about conducting a successful corporate merger or private equity acquisition? Schedule a free consultation with Keith Boudreau or another Newport Board Group partner now.