When I join an organisation to plan, prepare and drive a business integration, some people ask me how a consultant can manage other consultants. The short answer is that I do not consider myself to be a consultant, but rather a senior interim executive. The difference is not semantic. As an interim, I am a member of the Client’s team – albeit on a provisional basis – with a clear mandate to conduct the integration and be accountable for its successful outcome. I blend into the Client company, adopt their ways of working, their vocabulary, their dress code, their house rules and expenses guidelines.
That said, I do not subscribe to the notion of a “Client’s side” and “consultants’ side”, since the only way to generate value, build knowledge and realise sustainable benefits is for all parties to work hand-in-hand. There needs to be a spirit of active collaboration.
This approach allows the company to be in full control of the dual focus that is required to achieve a successful integration without any detrimental impacts on business performance.
With the exception of companies whose growth strategy is heavily reliant on serial acquisitions, for most mid-size or smaller companies a merger or major acquisition is a once in a lifetime event, so it is no surprise that the leadership teams of those businesses have little or no prior experience of managing a post-acquisition integration or an orderly merger.
We are all familiar with the notorious claims that 50% to 80% of all mergers and acquisitions fail to achieve the outcome upon which their business case was based. The initial studies on the effectiveness of M&As date back to the 1980’s, and yet a study published by KPMG in 1999 based on a survey of 107 cross-border M&A transactions completed between 1996 and 1998 concluded that a staggering 83% had not succeeded in creating shareholder value. So it seems that the business community is not becoming any wiser.
Conversations with business leaders and private equity portfolio managers repeatedly reinforce my observation that most people seriously underestimate the complexity and challenges that need to be overcome to achieve a successful Post Merger Integration. I have often been told “that’s the boss’s job”.
Of course, the person at the top of the organisation must be seen as the leader and key sponsor of the integration effort, but is it reasonable to expect that individual to be personally involved in the running of two somewhat destabilised businesses whilst also managing the myriad of facets and issues that need to be considered and resolved within the course of the business integration?
As days only last 24 hours and business leaders only have one brain, additional resources are called in to provide advice and support, to guide the company along its PMI journey, or at least its early phases. This is the role of advisors, consultants and other subject matter experts. Despite this input of support and the huge capital of knowledge and experience, the majority of M&As still fail to deliver their promise. As it is reasonable to assume that the advisors and consultants are of the appropriate calibre, the causes of the failures are to be found within the Client company.
“Integrating companies is like pulling out teeth … you can do it quick and painful – or slow and painful. We shall do it quick and painful”.
Such were the words Jack Keenan told a startled audience of country managers when Guinness and Grand Met merged to form Diageo back in 1997. Having led large scale PMIs in his successful career, he knew well how crucial speed and sustained momentum are when it comes to integrating two businesses, and the Diageo merger has turned out to be a huge success.
From the start, many companies will feel that their advisors’ recommendations regarding the level of resources needed to achieve a successful PMI are a “hard sell” and an attempt to charge astronomical fees when in fact integrating two businesses is a simple affair – or so they think.
Beyond the client’s understandable efforts to contain the costs of external professional advice, the lack of internal resources available to be dedicated to the integration programme is one of the root causes of PMI failures, another being the lack of an experienced senior executive within the company’s leadership team with whom the external advisors and consultants can interface effectively.
Companies that have accumulated repeated experience of M&As integrate them successfully and with a high level of consistency, precisely because compared to first-timers they have a better feel for the level of resources, the amount of planning and preparation, the crystal clear governance and the realistic amount external support which will lead to a successful implementation. They also understand the cross-functional nature of PMI and the need at top of the programme management structure within the company for an individual – let’s call him or her the Integration Director – who sees beyond the confines of functional silos, understands how to manage and arbitrate interdependencies, organises the integration activity in a way that will minimize the disruption caused to the day-to-day business, and works effectively with the external advisors and consultants in making best use of their specialist knowledge to realize the business case of the merger or acquisition.
“Would people in their right mind go shopping for expensive groceries without any idea of how they will cook the meal?”
The above question might sound a little absurd, and yet when it comes to Mergers and Acquisitions, all too often the focus until the deal is signed is exclusively on the deal itself, to the detriment of the subsequent business integration process. Clearly, paying the right price for an acquisition, and having the appropriate warranties attached to the deal, will impact the potential value that can be created by combining the businesses, and therefore the return on investment which shareholders can expect to receive from the transaction.
However, not allocating time and resources ahead of the closing of the deal to the preparation the business integration is a huge wasted opportunity and is often the consequence of ignorance.
Speed (pace, rather than race) can only be achieved through thorough preparation, but many business leaders are unclear as to what they can and should prepare. Most of them are only aware of the fact that any exchange of commercially sensitive information prior to the closing of the deal can have catastrophic legal consequences; but what about all the information which is not deemed commercially sensitive, and what else can one prepare and organise in the absence of that information?
There is a clear need for Client companies to be informed and educated on the benefits of sound preparation and on the breadth of topics that can be addressed during that preparation phase. Here again focus, resources and experience are key to knowing how best to prepare to get a head start on “Day One” and maintain that thrust and energy throughout the integration process.
The concept of “First 100 days” is an interesting one. It is not the timeframe during which the task needs to be achieved, but just the barometer that gives us a sense of whether things are progressing in the right direction or heading for failure. The first 100 days set the tone: trust, energy, adoption, versus concern, scepticism and reluctance.
A newly elected politician must demonstrate within the first 100 days of a four-year term that some of his or her pledges have been kick-started, or will otherwise lose all credibility in the eyes of the public. The same applies in the case of Post Merger Integration. However, I have observed that the initial focus on the first 100 days can be detrimental to the quality of the planning and knowledge transfer that need to take place beyond that initial milestone. There appears to be a perception that most of the integration work can be dealt with within those 100 days and that the dust will have settled within that time horizon.
Whereas the client company will have enjoyed the support of consultants and advisors in the run-up to closing the deal and in the early days of the integration process, it is then left with its own resources and often a serious gap in experience beyond that initial launch. After considering the cost of getting experienced resources on board, many companies will attempt to carry out the integration by themselves, the plan being that they will resort to calling in additional resources only if and when the combined task of driving the integration and running the day-to-day business becomes overwhelming. In reality, by the time the company realises and admits that it can no longer cope without external help, the ongoing business and the integration process might both have suffered significantly. Putting things back on track at that point will be challenging – it at all possible – resulting in greatly increased integration costs and a gap in commercial performance.
No one should underestimate the importance of giving the integration the right impulse from the onset : the first 100 days are the crucial and unique opportunity to build interest, energy and excitement in the company, but during that same time everything needs to be set up and ready to provide traction beyond the initial kick-start. Sustainable change needs to be driven and supported over extended periods of time. Client companies need to be made aware that post merger integration is not a 100-metre sprint, but more like long-distance running, possibly even a marathon. And marathon runners know they can only succeed with excellent preparation and good coaching.
I have witnessed M&As in which senior management clearly saw the need for advanced preparation but delegated almost all that work to external advisors. This is unlikely to achieve much traction, because in the absence of any internal single-minded focus on the planning and preparation, the managerial bandwidth of the Client company will be fully absorbed in negotiating the M&A transaction and maintaining day-to-day business on course until the deal closes.
Regardless of the number and quality of external consultants available to provide guidance and support with planning, process re-design and analysis during the pre-close period, there needs to be an efficient interface between those consultants and their internal counterparts working on that preparation. The role of the Integration Director – a senior internal individual, or senior interim acting and perceived as an insider – should therefore commence several months before the close of the deal. Sadly, in too many instances, this role is appointed or brought into the organisation only when the integration is about to kick off, thereby setting the integration journey on a bad course.
As a senior interim executive in the acquiring company, my focus and accountability for the integration allow the rest of the Executive team to concentrate primarily on running the day to day business. But my presence in that role it is also of value to the external advisors and consultants involved in the integration process, because it provides a single point of contact and greatly reduces the time spent explaining to the acquiring company of what needs to be done, how, when and why it is important.
Making the other members of the Executive aware of the resources and effort required for a successful integration is my responsibility, and the absence of any conflict of interest in providing that advice, based on my repeated experience, makes that advice more credible and acceptable.
This allows the integration process to run smoothly in companies that are embarking on their first major acquisition in the same way as it would with a business that it fully accustomed to this kind of activity.