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Surviving Corporate Acquisitions

22.05.2010

There is the right way, the wrong way, and the new company’s way….

Just Merged

Many years ago, a company I worked for was purchased by another company and then that company was purchased by Honeywell a year later .  One of my new colleagues (from the acquiring company of a year previous) explained the three rules of an acquisition:

Rule 1: Don’t forget who bought who.

Rule 2: There is no such thing as a merger.  Refer to Rule 1.

Rule 3: Don’t forget rules 1 & 2.

I have been through numerous acquisitions since — from both the buying side and selling side — and these three rules have served me well

When one company buys another, they buyer is paying more than the current stock quoted price.  The buyer expects to justify this premium and get even more value by realizing the “synergy” between its company and the acquired firm.  This could be cost savings by eliminating duplication, cross selling, ability to control the market pricing, or a combination of many perfect reasons why the acquisition is beneficial.  It is important to remember that a simple continuation of business performance by either the acquired or the acquiring firm will not be sufficient for the the management team to justify the deal they made.  The statistical reality is that 50% of acquisitions fail and are divested or dissolved after the dream of synergy crashes.

The process of events during post-acquisition is rather predictable.  Immediately after the announcement, many nice things will be said to try to calm fears.  Few major changes will be announced and “the best of both companies” will be the new mantra.  Managers will be encouraged to learn about their counterparts (assuming it is not too distracting to their current work) and encouraged to adopt what will best serve the combined firm.  The planning process typically includes this honeymoon period to demonstrate that the rationale for the decision was correct from the beginning.  As time progresses, however, the business commitments to supervisory boards (board of directors) will require that some of these anticipated synergies be realized.  It is also common that people underestimate the trauma to staff (and customers) associated with the change.  This trauma can result in lower business performance just as synergies were anticipating higher performance.  Suddenly the pressure on the acquiring management team is doubled.  As a result, they decide to accelerate the time schedules.  This means ending the practice of letting managers rationally go about the process of unifying systems and processes.  Management will now require removal of duplication and in the vast majority of cases the  new system or process will be that of the buying company.

Each month will show an increasing gap between actual business results and the promised synergistic results.  This leads to  corresponding pressure on the most senior levels of management to make the promised synergy a reality.  At some point, there will be a decision to eliminate further  investigation into the acquired company’s systems and processes and there will be a new declaration that all duplications should be replaced by using the acquiring company’s systems and processes.  Reorganizations will occur and managers will be assigned — managers from the acquiring company, that is.  Ultimately, nearly all of the acquired company’s management and key players will be pushed out or will leave.  At this point, there is the realization that the acquisition will never achieve the promised synergies.  The next logical step is financial damage control.

For selling side managers, there are three key points to recognize:

1. Managers from the acquired company who continue in their former roles with the acquired company are likely doomed to failure.  They have too much experience to believe that the ideas and processes of the new buying side company are really better.  The acquiring side managers will see this as mistrust, and thus a loyalty problem.  The buying side company needs commitment more than they need experience.  Consequently, those with intimate knowledge are typically not able to set aside their experience in order to achieve the goal of unity.  The only successful tactic for the manager who has just been acquired is to move into a new part of either company.  Software managers must move to marketing and marketing managers must move to departments in the new buying company that work with different customers.  When good managers are faced with new, unfamiliar business areas, they either need the buyer’s management for guidance or at least find themselves in a  collaboration mode while they learn together.

2. The early discovery period of the combined company is typically filled with confusion and anxiety.  This is the acquired manager’s opportunity to establish new contacts and find a new home.  When the results of the synergy are seen as a failure, all managers will find it hard to shine — they will be seen as either bad managers, as not aggressive enough, or not able to change.  Any and all of these labels are unrecoverable as the pressure by top management increases.

3. If the acquired manager cannot find a new home, he or she will do well to define their terms of departure.  The acquiring company’s managers (especially senior ones)  seldom do a good job coaching or documenting facts that would support their emotional conclusions that the acquired manager is not good, is not aggressive enough, or is not able to change.  Nonetheless, once they decide that the acquired manager must go, they become defensive and will not want to “let the terrorist win” or to recognize their own failure to effectively employ their recently acquired talent.  This makes for a painful and likely poor outcome for the political victom in the exit process.  On the other hand, if the victom manager proposes an exit package before the acquiring management team has made the hard decision to remove him or her, then that manager can get paid by not forcing them go through the pain of making the uncomfortable decision.

In summary, there are three rules for how to behave if your company has been acquired, but only the first one counts:  Remember that is it the buyer who makes the decisions that will effect your career and they will be under great pressure to make the consolidation a success.  But the likelihood of a successful outcome is not great.  Use those early days of merger confusion, anxiety and distrust to find a new home outside of where you currently manage but within the new combined company.  If you can’t find a suitable home, define your terms for exit before they do.

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