Mergers - Don't Throw The Baby Out With The Bath Water
Mergers and acquisitions are not new. Whilst they are commonplace events in the papers and on the TV, how much do people think about what actually happens when two organisations get together? Readers of this article may have been on the receiving end of an acquisition or merger (and may even have lost their jobs as a result of elimination of duplication). Alternatively, they may have been involved with the process of integrating another organisation. At present, we are seeing a number of mergers in the financial and business worlds. My concern is that with the focus on managing the merger process, senior management may lose sight of the fact that they are running a business in very tricky markets, with potentially disastrous results.Those who notice the most difference are management, staff and customers. Management have to learn new frameworks of operations; staff have to learn a new way of doing things and to get to know new colleagues and systems. Customers may see (among others) a change in service, staff who face them, product lines and corporate identity. The engines that drive forward a successful merger or cause it to fail are: customers, staff, products and systems. Get the balance right, and you have a winner; get distracted, and you destroy value (and maybe the organisation).
If we compare mergers with marriages, the phases that I see are: checking out the scene (the process of deciding which company to acquire/merge with and due diligence), courtship (persuading stakeholders that it is a good idea), the marriage (the official announcement of and process of merging), the honeymoon (the post-merger settling down period) and finally a return to “normal life” as a new organisation. Like marriage, the process is complex, needs work and evolves over a number of years.
Management have to manage a variety of factors: integration of staff, culture, systems, procedures, eliminating duplication, legalities, compliance, contract harmonisation, staff, union and customer hearts and minds, politics, stress. It takes years to bed down a merger unless the parties involved are very small, but at the end, the net result has to be an increase in value added. At this time, there is an additional challenge to manage: the current global economic crisis demands extra care.
Everyone has their own views on what makes for a successful merger. My own opinion is that it starts with good quality due diligence – checking out the potential partner. At the beginning of February 2009 Eric Daniels (Chief Executive of Lloyds TSB) revealed that they carried out 3-5 times less due diligence than they would normally have done on HBOS (but did he fall, or was he pushed?). This resulted in Lloyds being forced to take GBP17billion of government capital, announcing write-downs of GBP11billion as a result of their takeover of HBOS, and prompting a drastic fall in their share price. There is speculation that Lloyds were asked to step up to the plate – but at what cost to the UK financial market, already reeling from the credit crunch?
Assuming that due diligence is positive, the next step is persuading stakeholders of the wisdom of the move. Shareholders, staff, customers, unions, regulators, governments, competition authorities amongst others all have to be convinced that this will be a good thing. Will it result in added value all round? The added value may be a stronger business (or a rescued one). Expect staff and customer losses – there will be those who cannot work with the new regime.
Assuming that the above works, management need to set priorities (most of these will, hopefully, have surfaced with the due diligence). They need to think of, amongst others, the strategy for the new organisation in the new competitive landscape, systems, people, products/business lines, customers, fixed assets, corporate identity, financial reporting, regulatory and legal filings. Ideally, there will be a separate merger team reporting to the new Board of Directors. Team members should be drawn from both sides and must have intimate knowledge of their own organisation. It is best if they are completely removed from their “usual” jobs to avoid distraction. Admittedly, this will not always be possible, but it will at least mean that senior management at the higher levels are not distracted by having to continue running their own business as well. Yes, it will cost more, but the longer-term benefits will outweigh this, and remember, you have more staff available. The merger team should also have the ability to co-opt members as needed for varying periods of time if this can be done. Don’t forget your legal advisers and audit firm – they can help, as can interim managers who will often have valuable skill sets at high level.
In the meantime, “business as usual” must continue. There will still be customers to serve. Staff morale will be critical at this time. The best way to keep customers, staff and other stakeholders (e.g. shareholders, unions, banks, regulators) on side is to issue regular updates on progress – so gear up your Communications Department (or put someone in charge of this).
Staff will be particularly concerned over job security and some unpleasant decisions will have to be made. Make it clear what will happen and when, and be sensitive. Staff will have knowledge of systems, customers, processes and networks of others who help them deliver the customer experience. Manage this badly, and you destroy value. There will also be unions to work with. Remember, uncertainty breeds fear; fear breeds poor service.
Any merger means change and uncertainty, but good management minimises potential damage and maintains stakeholder loyalty. The critical steps are: good due diligence at the outset, clearly defined merger steps, a separate merger team reporting directly to the Board of Directors, regular communication to all stakeholders and involvement of the line. The merger process needs to happen alongside “business as usual” even if this implies additional cost to start with.
Labels: Strategy
posted by William Martin @ 17:54
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