An often neglected side of the acquisition process is the positioning of the acquired company to achieve maximum (mutual) benefit through realising synergies and achieving shared strategic objectives. At Vsolution, we contend that the management team of a voluntary target company can, and should, be proactive in engaging with the potential acquirer to explore potential synergies and improved ways of working.
Effective early collaboration will lead to a successful change of operational and legal control and set the tone for a successful integration and benefits realisation, and will take much of the pain out of the deal process. Integrations come in many guises from heavy-handed and imposed to light-handed and consensual, with many variations in-between, however it is useful to consider four basic models:
1. A takeover of one company by another
2. A merger of equals
3. A merger of two companies to transform into a new, stronger entity
4. A holding company type arrangement with significant operational independence
No matter which model, the acquired company in particular will experience significant change. Even the loosest ‘operational independence’ option is daunting for them because, even though spared the imposition of tight operational controls, the ‘old’ management team will likely be expected to realise the strategies and targets set by the ‘new’ shareholder.
Acquisitions often involve soul searching by both management teams, especially on the side of the target acquisition where the mere ‘threat’ of acquisition is often enough to spur improved operational performance. Even before any deal is done it is important for both parties to turn the potential threat into a new opportunity by agreeing a mutually beneficial shared strategy that revisits fundamental questions like ‘what markets should we play in’ and ‘what should our joined-up value proposition, channels, products and services be’, ‘which business model will best capture the strengths of both sides?
The first three models will require significant change and potential trauma. In deals that seek to maintain ‘operational independence’, initially at least, things carry on much as before, most people stay in place and clarity is sought around the roles of the senior management team with regards to the reporting arrangements with the new parent.
That said, the smart management team of an acquired company will still be proactive in seeking to achieve their strategic objectives by leveraging the parents capabilities. The parent too, will likely seek access to the new capabilities and markets offered by the acquired business. The key question therefore, irrelevant of which model is adopted, is how far and how fast do you push synergy objectives; through the mechanism of a formal integration programme or through more collaborative working arrangements?
Experience suggests that formal programmes, with strong governance and clear targets, significantly increase the assurance of capturing synergy benefits. Without the focus that comes with formality, loose integrations can drag on, will frustrate employees and can damage customer relations whilst achieving the double whammy of disrupting operations without delivering synergy benefits!
Whichever route is chosen, it is important to understand how both sides see the deal, for the acquirer to be transparent about their approach, and to ensure that expectations are aligned from the outset.
During the deal and integration periods, a lot of discussion will centre on people and culture issues. Again, from a culture perspective, you have the choice of different models, typically summarised as:
1. Build a best of both cultures
2. Use one of the cultures as the basis for integration
3. Keep both cultures separate
There will be different cultures because all organisations differ, especially if there is an international dimension. The choices you have in dealing with this issue derive largely from the acquisition arrangement. If yours is ‘operational independence’ then the obvious cultural approach would be to ‘keep both cultures separate’.
You may, however, choose to selectively adopt elements of the parent culture and the new parent may anyway impose certain practices that will de facto engender a different culture, such as a particular approach to performance management or different discretion frameworks for decision-taking, for example.
Again, the important thing is to be prepared, understand what you want to get out of the deal, and negotiate an approach in advance, understand the implications and manage the change process.
In essence, whether you are the acquirer or acquired, you should go into the deal ‘on the front foot’, clear about your expectations and knowing what you need to make a success of it, with sufficient candour in the discussions to know that you’re both aligned. Many deals fail several years down the line, destroying value in the process, because the difficult questions were never addressed up front as the objective became closing the deal itself rather than achieving the acquisition outcomes.
No matter the type of acquisition approach, it is in the best interest of all parties to ensure that the change of legal and operational control on ‘Day One’ is managed efficiently and sets the right tone; and that there is already an outline plan for maximising value by capturing synergies.
This involves managing a lot of process, but also involves creative thinking about the future of the business (done well, its a very stimulating exercise); you mustn’t get trapped into thinking that the outcome of the deal is the deal itself, rather its about capturing longer term benefits, and positioning the current management team as a safe pair of hands that will seize the opportunities created through the new relationships. It is early, proactive planning and preparation that ensures a smooth transition and eventual success.