Let’s Save a Deal
An eight-step program that will help you ensure your deal of a lifetime stays that way
Marzena Czarnecka is a Calgary-based business writer. She can be reached at firstname.lastname@example.org
by Marzena Czarnecka
You know it. I know it. My favourite Wall Street investment banker knows it. Post-merger integration is often a chaotic mess of waste and value destruction. All too often, the signing of a deal is seen as the end of a long process. The deal team is exhausted. Done. Dying for a two-week hot tub soak in Hawaii. Except that the merged companies’ field staff and front-line managers are scrambling to pull together in one direction. And which direction is that, exactly? Which accounting system are we supposed to be using again? Am I his boss, or is she mine – and who exactly is doing payroll this month? And are we still selling that plant?
That’s why half of all mergers actually destroy value instead of creating it. But not yours, right? Because you, you are going to do it right. There’s a blueprint. Ready? Here we go.
First, start with the right kind of deal. You can’t make a silk purse out of sow’s ear, and you won’t beautifully integrate a deal that was a bad idea in the first place. Obvious. And obviously you chose the right acquisition/merger opportunity (we told you how to do it in February). So you’re off to a good start. Next, as the deal team is sweating through due diligence and all the other stuff that goes into making the deal happen, start the ball rolling on the development and articulation of a clear strategy around “why the deal has happened and an end-stage vision of what that completed deal looks like both for the operations of the new company and each company within it,” says Randy Watt, a partner at Deloitte. Sounds like a mouthful? Let’s parse it: Know and be able to explain – to everyone, from your most important customer to your laziest mail room clerk – why the deal’s a good idea and what the post-deal company will look like. If you can’t do that, well, it’s probably not the right deal.
Third, nail down the post-deal governance and chain of command. Not just the board make-up and the C-suite team – we know you’re going to do that. But work down the food chain as well. You know that old adage about how too many cooks spoil a broth? They also spoil a merger. Figure it out now. Call it an interim chain of command if you don’t want to make final decisions just yet, but make sure there’s a post-merger governance structure that addresses, from day one, how, where and by whom decisions are made.
OK. That’s the key big picture stuff. We’re ready to start drilling down into the nuts and widgets. Next, put someone with clout in charge of the integration work. Not Klout – clout. Real clout. Someone who’ll be able to hold her own with the big egos on the deal team and ensure that all the integration work – and not just pet projects – get done. And this person, says Sandra Marin, the principal of Sandra Marin & Associates, should have HR issues top of mind. The deal team’s been sunk in deep financial analysis, and the operational issues need to be made to mesh. The “soft” stuff, which, come end-game, is what will probably make the difference between a successful merger and a horrific, value-leaching disaster, will fall through the cracks without
a velvet-hammer-wielding champion.
You’re ready to hear some PR pap about communication right about now, right? Good, because that’s the next step. Companies know they have to communicate the vision, the plan. Leaders are all over that. Pretty excited about it, usually, when the deal’s the right deal (it all comes back to that, you see). They spend thousands upon thousands of dollars, if they’re smart, on communication experts to craft their press release and investor powerpoint presentations. “Where laws allow, that communication – of what the new organization is, what the new vision is – it all starts before day one,” Watt says. “You need to get moving on that as quickly as you can.” And, in fairness to all of you who’ve done post-merger integration badly, most of you know you need to communicate, and you’ve invested time and money in crafting the right communication. “But inevitably,” Marin says, “something is lost
between the boardroom, where the C-suite figures this out, and the floor.” See, while it’s critical to have your CEO sell the message, it’s even more critical – from the internal operations point of view, at least – to have your front line managers sell it as well, both to your employees and to those of your clients and other stakeholders with whom they interact. For your employees, their direct manager’s sell of the deal is what matters the most. Ditto to your external relationships: A letter from the CEO isn’t going to carry nearly as much weight as the spin the sales guy in the field delivers. Equip them. Train them. Indoctrinate them.
Step number six is communicating the hard stuff you’re reluctant to say. “Whatever you don’t tell your employees, they’re going to talk about it anyway,” says Marin. So, you’re selling them the vision. Great. But be upfront about redundancies and reductions, what’s going to happen to benefit plans and which functions may be eliminated rather than just what opportunities will arise. Give them timelines. Don’t be afraid, stresses Marin, to say, “I don’t know” (because sometimes you won’t), but always follow that up with a, “but we will let you know within [insert specific time period here].” You need to do this because one of the reasons post-merger value creation plummets is a company’s rank and file stop working for you and start working on their resumé. Productive and desirable? Of course not. But it will happen, unless you get in front of it.
Seventh, bend over backwards – and then some – for your high performers and top potentials. “Be selective,” Marin says, “but keep in mind you need to identify the skills and people you need to keep not just for the short-term. The last thing you want is to have your future success walk out the door.” And it will, unless you work proactively to keep it. Never mind that company A bought company B: Do not keep the mediocre performer from company A and let the high potential talent from company B walk. Make the hard decisions – fairly, and according to a big picture strategic plan, not based on relationships, friendships and back scratching.
Finally – ready? We’re almost done. But this is the most important part: make the hard decisions quickly, and do not attempt to stretch out the period of pain. Change is hard. Watching friends lose jobs is hard. Reorganization is killer. Stretching out hard decisions, interregnums, and times of stress and adjustment over weeks, months and years is a value killer, says Watt. “Change causes anxiety,” he stresses. And anxiety drags down productivity, engagement, and profits. “The longer you draw it out, the more value will get leached out,” he says. “Compress it into as short a period as possible. It’s like ripping off the Band-Aid. There is going to be pain.” Own it. Be honest about it. And get it over as quickly as possible.
If you do it right, then at the end of it you can look back at your post-merger year the way Pembina Pipeline CEO and president Robert Michaleski is looking at Pembina’s digestion of Provident Energy, which it acquired in January 2012 for $3.2 billion. Despite a few curveballs that were thrown at the integrating company by the markets, the post-merger integration and performance of the companies is pretty darn sweet. Despite the unanticipated drop in the price of propane, one of its key products, the financial rationale for the merger and the economic performance of the integrated company is on track. On the talent side, 95 per cent of the people offered positions with the new company accepted. Michaleski is pleased, as are the shareholders. And the secret to Pembina’s success? “We had integration teams that consisted of people from both companies, and we set them fairly ambitious targets, both from the perspective of trying to understand each other better, and from the perspective of getting them to select processes, policies and practices from each company that would work best going forward,” Michaleski says. “We weren’t just saying that because Pembina is buying Provident, the Pembina policies are better and should be used.”
The company also got in front of its communications and tried to be as transparent as possible, in its internal and external communications, working hard to sell everyone on the merits of the merger and the compatibility of the two merging cultures and business plans. “We also physically integrated the two companies as quickly as possible,” Michaleski says. “We set very ambitious targets for operational integration.” So what pain there was didn’t last very long. Like ripping off a Band-Aid, in other words. All right. Ready to rip off yours? Go.