If you are in the M&A process right now as a buyer or seller, or you soon will be and you want to take the steps to avoid failure in the early going after the sale, you've come to the right place.
From our studio in Southern California, with guest experts from across the country and around the world this is Deal Talk, brought to you by Morgan & Westfield, nationwide leader in business sales and appraisals. Now, here's your host, Jeff Allen.
Welcome back to the web's number one content source for small business owners committed to building a business for eventual sale. Here on Deal Talk it's our mission to provide information and guidance from our growing list of trusted experts that you and all small business owners can use to help you build your bottom line and improve your company's value.
We're talking about the difference between those M&A deals that fail and those that don't. It's all in the transition and it's all in kind of that short space of time really between really the time that the deal closes and the time that the two companies become one and hopefully they don't divest and sell themselves off at a loss.
We're going to talk all about it with my very important guest today, Mr. Stuart Diamond, former M&A North American practice leader with Computer Sciences Corporation now enjoying a pseudo-retired or quasi-retired like so to speak in Houston, Texas.
Stuart Diamond, welcome to the program. Nice to have you on “Deal Talk.”
Great. Thanks Jeff. I’m glad to be here.
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.
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.
We wanted to bring you on to talk about this very important subject of integration. And it really is important, and I think in some cases it may in fact be a lost issue, or a lost subject of importance.
And here's kind of what mean by that. Listen. According to Harvard Business Review Report, and this is something that's just published early last year in 2015, 70% to 90% of all mergers and acquisitions fail, 70% to 90% of all M&A deals fail. You've been on the front lines of many deals, why do so many of these things end up not turning out well?
Yeah. I would say Jeff generally three reasons. You could put them in three different categories. The first being just poor strategy, i.e. the deals really didn't make sense. An example would be in 1995, Unum Corporation merged with Provident Companies. And they both were the largest provider of disability insurance. The one was for large corporations, and one was for individuals.
And what they found once they merged is that selling to a corporation and selling to individuals are not interchangeable. And the salesmen that were great at individuals, were not great working with corporations and vice versa. And so that was an example of, the strategy while look good in paper, sound and good just didn't make sense when the companies came together.
So one is just poor strategy and that's well before the integration. Jeff, another example would be just overpaying. So bad deal-making and if you recall in 1994 Quaker Oats purchased Snapple for about $1.7 billion. And it's a time many of the analysts thought that was about a billion dollars too much. And that was another one that was in that failure category.
And then lastly, probably the area that I focused on -- it's just poor integration, i.e. the companies just weren't able to get the nuts and bolts and putting them together correctly and I think recently just ask customers of United Airlines with their merger with Continental, from what I've read, there's a number of disgruntled folks there.
And behind all of those reasons, factors for failure, there are people that are involved there and there are a number of well-meaning people who came together and maybe they consulted with the right team of professionals. But there could be any number of little micro reasons that these things didn't come together.
That aside, let's take a look at the other side of the coin, what are some of the critical success factors for those companies that have mastered mergers and acquisitions. And I know that you could probably roll several of these very quickly right off your tongue, but just kind of share what you know about those success factors that make some companies just seem to be adept at putting things together that work?
Okay, very good. The first one I would say would be really understanding the intent of the merger. And mergers usually fall into four different categories. One would be a pure consolidation play when, say, two banks, or two oil companies, or two pipeline companies merging, they're really not offering anything new, rather they're taking this large cost space, fixed cost, and allocating it over a much greater area. So that's a consolidation play.
And the reason it's important to understand the differences is because you approach the merger differently.
Another one is a combination when two companies come together and they're actually adding something that they don't have by themselves. So for instance you'll see this in a hi-tech area where Apple will acquire a firm specifically for a piece of software or hardware technology and they're trying to integrate that into, combine that into their existing operation.
And also another example of this, a few years ago Procter & Gamble acquired Gillette, and they acquired a first-class sales force, an additional product line, and an incredible R&D organization. So there you're combining two companies and you want to actually preserve something, the best of both. So that would be the second type.
And then another one is a preservation strategy where companies really they're acquired but they're left to operate separately. And then lastly you'll see, and you don't see this often. I have some examples of this. It's a transformation where two companies are coming together and really trying to offer something unique to the market place that neither of them could do on their own.
So those are the four types. And if you don't get that right and you don't understand it, because each one you have to differently. And if you don't understand which one you're doing, you have a problem.
And the most frequent example, I see this, and you hear this in the press a lot of times, companies get together and say, "Hey, we're going to have a merger of equals,” when in fact it's a consolidation. So there's a whole bunch of time wasted saying, "We're trying to pick the best of each," when in fact you're really not trying to do that. So getting the intent right is important because that affects a lot of the downstream work.
Another critical success factor, and really companies that are successful at this is all-around results management, which includes risk management, and that's a rigorous and formalized approach to actually making sure you understand and track the results of the merger. Because if you don’t do that, you're not going to get the results.
And then another critical success factor is executive leadership. A lot of times companies that don't succeed, they actually delegate the integration to lower levels and committees, and it just churns and doesn't take a whole lot of time. So full-time, engaged executive leadership with the authority, accountability, and willingness to make the tough decisions.
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.
And then lastly I'd say critical success factor is really understanding the nature and planning for the organization change. So that's making sure the organization is ready, and making sure that they're trained for what's to come. So those would be my, I would say general critical success factors.
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.
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.
My name is Jeff Allen and you're listening to “Deal Talk.” We're glad that you're with us. Stuart, to continue, how many companies are really ready with some kind of a formal integration plan of some kind. They come to the table, they know what they want, they know how they're going to accomplish what they want to do. Do these integration plans, if in fact a company has one, do they really in fact increase the chances for success?
Well, first of all more and more companies who are doing mergers obviously over time they create these integration plans, and they absolutely do help with success. And here's what's interesting, it depends on your definition of a formal integration plan.
The earlier phases of an integration, or even prior to it, the due diligence, the discovery phases, those two distinct phases there are a whole host of checklist and formalized plans. But as you get into the design and the integration it's so dependent on, first of all as I said earlier the intent, and second what you found in the due diligence and the discovery.
So those lend themselves less readily to an off-the-shelf plan, i.e. plans are important but those really have to be developed once you do the due diligence, once you do the discovery phase.
Again, more companies have it but it's a little more challenging later on. And I mentioned this earlier, take risk management for instance, that is so crucial, but until you really get under the covers and dig around you're not going to know upfront all the risk. You'll know some of them but not all. So actually risk planning and that kind of formalized risk management plan can't be developed fully until much later on into the integration.
Stuart, what does the "formal" integration plan take into account and what did the most effective ones, what do they all have in common based on your experience?
All the plans, first as I mentioned earlier, dictated by the intent. If you're doing a consolidation, that plan is going to look a whole lot different if you're keeping the two companies separate. So first, again, plans follow the intent of the merger. So I want to reiterate that point.
And then what is in common, there's certainly typically the due diligence phase, the discovery phase, a design phase, an implementation phase, so those general, broad categories are all common. 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.
And then what are the processes we're going to use and what are the procedures, what suppliers are we going to keep with or not keep with, and how do we interact with the customers during this transition afterwards. So each area needs a plan, it needs to be comprehensive.
And on day one, when you make the cut over, what does day one look like. What they do to be successful they have to be comprehensive and take all these different aspects into account.
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.
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.
Or is it also possible that a slow process between two companies to bring one into the other is needed because of the sophistication of the deal and of all of the moving parts of both companies. And the need to kind of assemble if you would that integration plan in real-time in order to get these different moving parts and sync with one another.
Yeah, that's a good question. And obviously I'm not advocating being... first I am advocating, you have to be thoughtful, you can't be reckless but I've rarely seen where speed is the issue, that is you've gone too fast. It's usually things are being dragged on and on, and it typically goes back to that leadership, that is no one seems to be in charge of the integration. Again, they've delegated it and they haven't made the tough decisions, and it just is bad for morale and it's bad for the customers to be in limbo over a long period of time.
And obviously if there's very complex technology issues maybe that will slow you down. But it's more the case where companies are moving too slow I've seen. I've not seen where companies have moved too fast. In fact, companies that are really good at it move very fast.
And the best-practice companies I've seen on day one when the merger is all through approved and ready to go, they have that new organization in place. They've already figured that out and they know what processes and procedures they're going to use.
Obviously, some things they can't do before day one. There's certain legal reasons why they can't start doing certain things with suppliers and customers, but there's a number of things that can be done, and I always say my view is my biases move quicker than slower.
It's never too early to start screening third parties.
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.
My name is Jeff Allen and I'm visiting with Mr. Stuart Diamond, former M&A North American practice leader with Computer Sciences Corporation. And we're talking about post-merger integration. We're going to continue our chat when Deal Talk returns after this.
If you'd like to share your knowledge and expertise on any subject related to selling businesses or helping business owners improve the value of their companies, we'd like to talk with you about joining us as a guest on the future edition of Deal Talk. Interested? Contact our host Jeff Allen directly. Just send a brief email with "I'd like to be a guest" in the subject line. In a brief message include your name, title, area of specialty, and contact information, and send it to firstname.lastname@example.org, that's email@example.com
Selling your business may be the most important business transaction you'll ever undertake so don't go it alone. Work with an organization that has made it their business to sell businesses and that's all they do. Morgan & Westfield at 888-693-7834. At Morgan & Westfield we know that selling your company is not something you should take lightly. It can be a stressful, difficult, even emotional process. That's why it's important to work with a team whose one and only specialty is selling businesses throughout the United States. And Morgan & Westfield will help you every step of the way. From helping you plan your exit strategy, to preparing a comprehensive appraisal, and locating the right buyers. Without the right team behind you, you could be leaving money on the table. So don't leave your most important business transaction to chance. Call Morgan & Westfield for a free consultation at 888-693-7834, 888-693-7834, or visit morganandwestfield.com.
Jeff: If you have any questions about any of the topics you've heard us discuss on “Deal Talk” all you have to do is ask us. That's right, ask us, and you can ask 24 hours a day, seven days a week. This show is committed after all to bringing you answers and finding solutions regardless of the time of day or whatever day the year that it is.
Simply call our “Ask Deal Talk” info line at 888-693-7834 extension 350. Follow the instructions to leave your question. We'll reach out to one of our guest experts and hopefully feature your question and their response on a future edition of “Deal Talk.” Ask Deal Talk at 888-693-7834 extension 350.
Now, what if you just want to make a comment about the show in general or offer us maybe a suggestion for how we can make the show better for you? Well, that's easy. All you have to do is just drop us an email. Email us at firstname.lastname@example.org. Once again, email@example.com
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?
In addition to morganandwestfield.com you can find this program on iTunes, Stitcher, and Libsyn. And on the morganandwestfield.com site by the way, you can find a complete transcript of this program, and you can learn more about Stuart Diamond and all of the guests that we have on this show. So please do make sure that you visit morganandwestfield.com as soon as you can.
“Deal Talk” has been brought to you Morgan & Westfield, the nationwide leader in business sales and appraisals. Learn more at morganandwestfield.com. My name is Jeff Allen, again, thank you so much for listening. We look forward to talking to you again soon.
While we take reasonable care to select recognized experts for our podcasts please note that each podcast presents the independent opinions of such experts only and not of Morgan & Westfield. We make no warranty, guarantee, or representation as to the accuracy or sufficiency of the information provided. Any reliance on the podcast information is at your own risk. The podcast is for general information only and cannot be considered professional advice.