Post-merger integration isn’t just some fancy name for an M and A concept. In truth, the success of the transition from one owner to another of any business depends very heavily on what happens in the days and weeks after the acquiring company officially takes over. As you’ll find out in our discussion, both the new owner and exiting owner share a responsibility to make certain the business that was sold continues to succeed and thrive well into the future, for the sake of the deal itself and for all of the people involved including the employees. Join Jeff Allen as he welcomes Mr. Stuart Diamond, management consultant from Houston, Texas.
And the reason it's important to understand the differences is because you approach the merger differently. . . And if you don't understand which one you're doing, you have a problem.
- Stuart Diamond
Jeff: We appreciate the fact that you've taken some time to talk to us about this because Stuart you have really spent a lot of time in the M&A space and you've seen a number of things go down over the years and while you were there with CSC.
And then speed... There are many mergers, I'm sure people would tell you that it just seems to just drag on, and on, and on, and that is just not good. It's not good for morale. It's not good for any savings. It's just not good.
Jeff: Stuart Diamond is my guest. He's a former M&A North American practice leader with Computer Sciences Corporation, and we're talking about M&A, specifically about post-merger integration and how to make sure, or how to work toward ensuring the success of that transaction post-transaction.
And really a successful plan has to be comprehensive, i.e. it has to take into account the obvious, what's the organization going to look like, what's the technology going to look like going forward, what facilities are we going to keep and go away with, do away with.
Jeff: I'm going to ask you to touch on something you had basically kind of just given us a bit of a hint on before, talking about the speed of the process. You talk about some of these M&A deals that just seem to drag on forever. And while you may have, I guess partially answered my next question before the speed of the M&A process itself, I mean, does it always indicate to you, let's say if it's slow drawn-out process that there are potential problems that could come up down the line.
The need for the organization change aspect is really critical. And you have to make sure everybody is ready for this transition and ready for day one.
Jeff: And you say a lot of it has to do with the strength of leadership there on the part of the acquisition team, and we're going to get more into this by the way when we come back. We're going to take a short break.
It's never too early to start screening third parties.
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I'm Jeff Allen with Stuart Diamond. We're talking a little bit about post-merger integration, how to be successful with it because I don't know if you jumped in here a little bit late, maybe you're listening over a colleague's shoulder, we talked about that really blaring statistic there, or glaring, however you want to look at it. It is blaring when you think about it. Loud and clear, Harvard Business Review Report published early 2015, 70% to 90% of all mergers and acquisitions fail. They fail, 70% to 90% of them. It's hard to believe but it is in fact true.
What I'd be interested in knowing Stuart, to continue or conversation... We've already talked about some of the critical success factors. What can the sell side or acquisition target company do toward helping the acquirer in a smooth integration or work toward a smooth integration? After all, is it not in the best interest of both?
Stuart: Yeah, absolutely. And what's so interesting... The short answer is be cooperative and keep in mind who actually owns you now, it's not you. And what is so fascinating I found in my years of doing it, there are so many examples of someone in the sell side, people who are hostile, belligerent, actually obstructionist. So obviously that does not help the integration.
I've been in a few companies where, and I talk about the importance of executive leadership, those folks are shown the door fairly quickly, and it really just changes the whole nature of the integration from being unpleasant to pleasant. The number one thing is you're not in charge anymore. You need to cooperate and be helpful, and have a good attitude.
The other thing though I find too that the sell side could do in a constructive way, they have to be somewhat the guardian of the intent. And this gets lost. Sometimes I see large corporations buying a smaller company, and for a specific reason, for a capability, for something, and then they kind of squandered away the larger company. It gets lost.
And so you do have to be in a constructive way and advocate for yourself, for your company, and what really made you good and why you are purchased in the first place. It's a delicate line to be balanced on but that's another thing that I think is important.
I always think of planning is living and breathing. So whatever plan you have going into the merger it will be tweaked and refined for that merger. And as you do successive mergers, you continually refine the plan and get better, and more robust.
Jeff: By the way too, as a business owner myself and one who will probably never really be involved in a situation where I'm acquired, although that would certainly be something that I would aim for. Anyone who owns a business and has owned their company for some time would seem to me would have the best interest of their people at heart.
And when you know that many of your people, if not all of them in some cases, will be going over to a new organization to oversee essentially the company that you've built and many of the same operations you're doing now will be conducted under different ownership. It would just see to me that if you have an interest in those people, if you've been with them for eight to ten hours a day for the last 15, 20, 25 years that you would want to see the best for them and that you would want a smooth transition knowing that they're so critical to the operation of your team, of your company, and of the success that you've had.
Stuart: Yeah, I agree, though it's not necessarily the owners that are uncooperative sometimes it's people just a little bit below that area are disgruntled, unhappy, whatever.
Jeff: Because they don't like change and they don't know exactly what's in store. And so I can see it from their point-of-view. And as I think that you'd probably would agree, you can't control everybody's emotional tendencies. You, in some cases, have to coddle them and do the best you can to hold their hand and make sure that they can get through the process. Let me ask you...
Stuart: And Jeff, as I mentioned earlier in the show, the need for the organization change aspect is really critical. And you have to make sure everybody is ready for this transition and ready for day one.
Jeff: Good. That's a very, very good point, communication is key. What kind of third-party help, Stuart, is there available to help the companies involved in the transaction, both sides, worth toward a smooth and successful transition?
Stuart: Yeah. I'd say there's lots of third-party help. And it really depends on the complexity and nature of the deal. And always have found for large deals a third-party sounding board is just good. Just get a neutral person or a company that you can go to is helpful.
And I've also found though as companies get better and better there's not always a need for a third party, that they are getting so good themselves through so many repeated acquisitions that they don't always need a third party. But many of the large consulting firms have M&A practices. There are boutique M&A firms that have it. There's individuals that do this work. So lots of different things, and there are people that specialize just in managing the effort. There are other people that have the technology expertise that can put these systems together. There are organizational change firms. So there is lots and lots of help, again, depending on what's required by the nature of the deal.
Jeff: Now, there are probably going to be number of people in the audience who actually kind of sit forward now, in the front of their seat and saying, "Finally, this is the question I've been wanting the answer to." How can acquiring companies start working toward an integration plan, one that works? What are the first steps they need to take and is this something that necessarily starts with the due diligence process or does it come well before that?
Stuart: The strategy, I can't really speak to that. Certainly, I usually think of starting with the due diligence process … Every company might have their own strategy. But I would say that the quick answer, if I wanted to get up to speed on getting a formal plan, first of all, there's lots of things on the web. So that would be the first place to go to, and look for checklists under due diligence or checklist under M&A, or plans, and there are things out there.
The other thing as you mentioned earlier, the third parties, it's never too early to start screening third parties. That is when we used to get involved with companies before the deals were even announced, that is they had selected their consulting firms well ahead of time. And just by going through that process when you meet with them, they will provide you generally through their presentations you'll see their frameworks, kind of their idea or plan.
So those are two, quick inexpensive ways to start getting plans done before even... And then you could put your own spin on it and work through it. But it's a good starting point. And I always think of planning is living and breathing. So whatever plan you have going into the merger it will be tweaked and refined for that merger. And as you do successive mergers, you continually refine the plan and get better, and more robust.
I've done a lot of mergers in a lot of different industries, and for me it didn't really matter the industry, the steps were, you're merging facilities, you're merging people, you're merging technology.
Jeff: Let me ask you something Stuart just to clarify and crystallize something with regard to third party help and consulting with companies or individuals who can help move you a step closer toward putting together that integration plan. What are some of the types of companies or consultants that I might want to contact and is it necessary for me to find someone who is necessarily a specialist perhaps in my industry or niche?
Stuart: Excellent question. I don't know of it's good or bad. I've done a lot of mergers in a lot of different industries, and for me it didn't really matter the industry, the steps were, you're merging facilities, you're merging people, you're merging technology. And in my mind, obviously expertise is better than not but it was not essential. I would say there are large firms that do just the program management part. There are firms that just specialize in the technology.
And as I said, there's a lot of different specialty firms, so it just, again, depends on what you're looking at, the size, the complexity. And again, let's say it's a huge multinational corporation and you need help around the world you're going to need a different type of firm than if it's a smaller merger that's actually taking place in just one or two cities.
Jeff: Stuart we've come to the end of our program and I did have one or two things here I wanted to ask you first of all in the time that we have remaining. Number one, if our listeners don't remember everything that we've talked about but there is probably one or two things that they should take away from this conversation about the importance of working towards successful post-merger integration. What would those one or two take away points be?
Stuart: Yeah, I would say two things. One is understand the intent of the merger because different intents require a different integration plan. And so a consolidation merger looks a whole lot different than a combination or a transformation. Number one, understand the intent, number two, develop a plan based on the intent.
Jeff: There are no doubt, or some people out there listening today who might want to get in touch with you with maybe some questions about their particular situation. Maybe they've got a deal coming up or they're thinking about one. If they have something that they'd like to talk to you about or maybe even do some business with you how can reach you?
Stuart: Best way would be email and it's firstname.lastname@example.org.
Jeff: Stuart Diamond this has just been a great program and a great half hour, and it's gone by in a big-time hurry. And I hope that if you enjoyed yourself you'd be willing to join us again soon.
Stuart: Happy to do that.
If I wanted to get up to speed on getting a formal plan, first of all, there's lots of things on the web. That would be the first place to go to, and look for checklists under due diligence or checklist under M&A, or plans, and there are things out there.
Jeff: Stuart Diamond thank you so much for that. Stuart Diamond and he's an M&A specialist and a former M&A North American leader with Computer Sciences Corporation. We hope that you enjoyed this show. And I know that I certainly did. Would you do me a favor? Would you tell a friend about Deal Talk? Would you do that for me?
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