Surviving and Thriving During a Merger or Acquisition
1 May, 2007
By: Bob MooreThe real work of mergers and acquisitions (M&As) begins after the numbers are crunched and the agreement is made. Closing the deal should not be viewed as the end result – instead, it should be considered as phase one.
Several factors contribute to successful M&As. The first is instilling a positive mindset among all employees – and this can only start at the top. Senior management alignment and partnership sets the tone, as employees look to their managers for direction and assurance during this important time. Getting people and processes to work together is the only way to make the new company work. A successful management team should evaluate each company’s “personal best practices” and incorporate them into the newly combined organization. Although 75 percent of M&As don’t reach their stated goals of greater financial results, there is a formula designed to encourage success. Attention, time and financial resources must be applied to employees and their work processes, so the new company ends up with a motivated, “can-do” workforce.
“PEDL-ing” Your Way to a Successful Merger or Acquisition
First, leverage the following learning strategy that has been successful in keeping teams aligned, collaborative, motivated and intact. This approach incorporates training around leadership, communication and a shared game plan – with the goal of improving and sustaining development at the individual, team and organizational levels. Centering on the “PEDL” principle (Plan, Execute, Debrief and Learn), the interactive cycle creates meaningful change over time and provides the foundation for sustained achievement. PEDL is based on the following attributes: 1) honesty, 2) giving and receiving constructive feedback, 3) honoring differences as assets, and 4) aligning intentions with behavior.
The following explores how PEDL works at each level of an organization – individuals, teams and the whole organization.
Individual Best: Getting Every Employee to Support the Newly Combined Organization
Using PEDL, the first level of strategic thinking is personal best, which requires setting goals at the individual level. In a M&A situation, all employees in the newly combined organization need to determine where they are on the “change curve.” In addition, each manager overseeing related integration activities needs to be aware of the resistance and openness among employees. Keeping a journal is key to reinforcing these aspirations. The journal helps record what you feel good about, what you are struggling with and what’s going on while operations and staff are being combined, so you can get a handle on how to manage the M&A. This technique focuses on personal responsibility and learning in a nurturing environment, while encouraging individuals to actively challenge themselves.
Team Best: Aligning Work Groups
Team best focuses on promoting a shared vision among teammates – uniting each employee into one powerhouse is critical. For example, “pass-the-rock” truth-telling sessions help improve team functionality and foster open, constructive feedback. Team members take turns sharing their feelings, challenges and successes. Each person talks without interruption until he or she “passes the rock” to the next person. The objective is to be honest and forthright, disclosing important personal truths that create understanding. Open communication is critical during what can be stressful periods when combining organizations. The goal is to debrief both technical and interpersonal aspects of the M&A. Participants need to communicate to address conflict, refocus and support one another – which is key to making M&As successful.
Organizational Best: Establishing a New Culture
Organizational best is critical because it works on unifying a culture of excellence, as well as inspiring growth throughout the organization. Top managers need to ensure that the culture of the newly merged organization works well. To open the lines of communication and develop understanding among groups, several methods can be applied, including retreats and one-on-one connections. After those initial sessions, the organization can hold quarterly, semi-annual and annual gatherings to facilitate continued alignment with all employees.
Aligning the Three Levels of PEDL – the Motivation Process
PEDL works best when an organization has three supporting pillars:
1) Leadership – successful M&As require involvement from senior management.
2) Communication – creates coordination and openness to optimize continuous learning at every level.
3) Shared vision – ensures that the whole organization will support each employee’s values and goals, and employees will be committed to transforming energy into action.
PEDL is a journey without end. Creating high performance in an organization requires constant nurturing, patience and attention – which, again, starts at the top with the most senior managers.
Two Software Companies Merge Successfully
In 2003, two complementary software technology providers merged – U.S.-based Witness Systems acquired U.K.-based Eryetel. At the time, each organization had about 300 employees. As the M&A was announced, Witness Systems formed a Core Integration Team (CIT) of 14 to 15 of the most senior managers from every department and level within the organization. The CIT was aligned with six sub-groups from important areas of the business to ensure the combined company’s success. These included operations, systems, administration, communications, product roadmap and customer care/support.
The two companies used PEDL to facilitate open communication, which ensured a smooth transition. The integration took six months, a very short and intense time. Holding multiple offsite meetings in both the U.S. and England, some involved only executives (CEO, CFO and COO), while others included entire senior management teams.
The CIT teams gathered periodically throughout the week and with their sub-groups to determine the new company’s product mix, market penetration for the combined organization, and which products they might not continue to market due to redundancy. The front end of a merger is always loaded with high-intensity work, because the new company needs a blueprint of how it will operate, what it must accomplish and its goals.
The success of the merger was evident in the company’s end-of-year earning reports, and all in less then nine months’ time. Highlights included:
• Revenue from international operations increased from 12 percent in 2002 to 34 percent in 2003.
• Sales nearly doubled, with a revenue increase of 63 percent.
• Earnings increased 400 percent.
• More than 200 new global customers were added.
• Customer support investments grew to nearly twice the industry average, and R&D investment was 25 percent higher than competitors.
• And new studies showed market leadership position growth – with market share upwards of 47 percent.
Witness Systems has since leveraged the PEDL model and the CIT process in four subsequent mergers. Top-level management fully backed and was involved in the CIT process, and staff across the global organizations was highly involved. Communication remained a top priority to keep all informed and engaged. Mergers fail when the planning executives think about the combined business solely in terms of financial and operational success. But if they practice openness, taking the “organizational and personal bests” of both companies forward into the new company, and regularly communicating progress, even the combination of competitors can be a rousing success.
A Large Data House Acquires Four Smaller Companies
In the second case study, ChoicePoint, a provider of decision-making technology and information that helps reduce fraud and mitigate risk, acquired four companies in the U.S. and U.K and combined five businesses into one. There were size variations among the companies, logistical challenges of getting everyone together, and differences in national and corporate cultures. The new company comprised 600 people – obviously too many for a single team. So, groups of 20 to 25 people were formed to help ChoicePoint merge all the new employees and divisions. Three outside consultants worked with their human resources team, the head of ChoicePoint and the top executives who were selected to remain on board.
The first meeting with the organization included a three-day offsite with 14 senior executives – the CEO, CFO and COO – and some of the founders and CEOs of the original companies. The company needed its top managers to bond, to become a team that worked together well. Again, a successful merger starts with top management, and then the organization can start working on all other levels.
Some concerns expressed at this meeting pertained to organizational dynamics. ChoicePoint is a large company, but some of the businesses merging were fairly small, and some managers didn’t understand why they had to manage more formally and adapt to big-company procedures. They wanted the best for the people in their divisions, so the first goal was to create a comfortable environment so they could discuss their concerns candidly. Through various team-building exercises, employees began to reveal how they work, provide insight into their leadership and conflict-resolution styles, and so on. They didn’t have to reveal anything they didn’t want to, and they became increasingly open.
Including employees in the reorganization process helped management decide how the future company would look, and the roles and responsibilities of each individual group. ChoicePoint ended up with definitions that all employees “owned,” because they played a role in the decision-making process.
These examples further reinforce why communication and strong leadership are driving factors in surviving and thriving during mergers and acquisitions, and in gaining competitive advantage in today’s converging markets.
