Stop! Don't Buy A Company Until You Read This!

Why do 70% of acquisitions fail? What are the 30% doing right?

Ever sit through one of those town halls announcing a big acquisition, and wonder why a whopping 70% of them don't pan out? You're promised this shiny new addition is THE game-changer. They flash projections of accelerated growth, industry dominance, and greater efficiencies... only if it were that easy. I've learned the hard way – acquisitions are messy. The real work starts after completing evaluations, due diligence, valuations, negotiations, and the signing of the purchase agreement. That is, the integration phase.

The Big Lie

We're sold the acquisition dream: instant access to a new pipeline and customer base they spent years building, additional revenue to bolster revenue projections, and access to a new employee base and their specialized skills. This is often a fantasy. I've seen many integrations and led a few myself. I've seen ones where six months after the acquisition, most of the acquired client base disappeared, the ones left are highly unprofitable, and almost all of the staff disappears as soon as they find new positions elsewhere. But those mistakes… they became incredibly valuable lessons.

The lesson was clear: successful acquisitions are not just about financial synergies or market strategies; they hinge on the detailed integration of people, processes, and cultures. And don't forget that integrating technology and platforms is no easy task. Just getting everyone on the same email, calendar and messaging platform can be quite challenging. This realization reshaped my approach to integrating future acquisitions.

Strategic Alignment

Integration success stories are those where strategic visions, corporate cultures, and operational goals are fully aligned. I've been a part of successful integrations where leaders from both companies actively participated in joint town halls, shared success stories, and openly addressed concerns, setting a tone of mutual respect and openness. Change champions were identified early—key people who are passionate about the merger's potential and who can sway others. These people became the linchpins of integration, bridging gaps and fostering a spirit of unity. The result was not merely a blending of operations but the creation of a new culture that celebrated the strengths of both entities.

It's essential to deeply explore alignment on these and other key factors:

• Do your visions truly align on a fundamental level?

• What are the synergies between the cultures? How will we manage differences in corporate culture?
• What changes, if any, will be made to the organizational structure?
• How will we communicate the acquisition internally and externally?
• What impact will the acquisition have on our customers?
• How will we retain key talent from the acquired company?

This isn't about which is right or wrong – it's about brutal honesty to prevent those differences from paralyzing everything.

Culture First

Prioritizing culture from the outset unifies the team and drives integration success. Too many companies skip or rush this step and they see the negative consequences months later.

An honest cultural introspection needs to happen way before lawyers finalize paperwork. Assess the compatibility of both companies' cultures. Analyze aspects like communication styles, values, leadership approach, decision-making processes, and employee attitudes. Use that as your guide for making decisions that will impact how these combined groups will co-exist. These will be challenging discussions, but they are essential. When differing work styles or approaches cause friction, use that to jointly find a better way.

To begin, below are some potential tactics that I've seen work well. Remember that the secret isn't just a checklist, it's a mindset. When conflicts come up, embrace them as opportunities for dialogue and innovation, avoiding the pitfall of superficial harmony.

• Employee Involvement: Seek employee participation in the process. Listen actively to their input.
• Joint Cultural Workshops: Organize workshops and training sessions that bring employees together to discuss, define, and align on shared values, work practices, and expectations.
• Implement Regular Communication Channels: Set up dedicated channels for continuous and open communication, including newsletters, town hall meetings, and Q&A sessions to keep everyone informed and engaged.
• Early Wins: Celebrate early wins and achievements that showcase what 'better together' truly looks like.

• Preserve What Works: Don't automatically reject what is effective in the acquired company's practices. Identify and preserve cultural strengths as you build a new entity.
• Develop a Mentorship Program: Pair employees from both companies in mentor-mentee relationships to facilitate knowledge exchange, cultural immersion, and strengthen interpersonal connections.
• Social and Team-Building Events: Plan regular social activities and team-building exercises to encourage informal interactions, build rapport, and blend company cultures organically. Look for opportunities to inject genuine fun and light-hearted activities into integration events. This breaks the ice and builds bonds between colleagues.

• Cultural Ambassadors: Designate individuals from both companies who embody your desired culture. Let them champion the integration, facilitate communication flows, and address questions or concerns among employees.
• "Day in the Life" Shadowing: Have employees from different teams and/or departments in each company shadow one another. This builds better understanding of operations, work habits, and most importantly, forms personal connections that help in integration.
• Internal Brand Campaign: Design an internal campaign, with a creative slogan and visuals to reinforce the message of unity and the emerging unified culture.
• Don't Underestimate Symbolism: Changes to physical workspaces, logos, or brand elements can hold real impact. Be strategic about these and communicate their rationale thoroughly.
• Small Gestures Matter Simple things like combined social events (think virtual or in-person coffee hours, catered lunches), or company-branded items given to all employees foster a sense of belonging.
• The Elephant in the Room: Acknowledge that mergers raise anxieties. Discuss job security, compensation, and benefits with honesty and transparency, rather than letting worries linger.

The Role of Technology in Integration

The role of technology is pivotal, acting as an enabler and accelerator for achieving goals and operational synergies. Technology facilitates communication, ensures seamless data and system integration, and supports the alignment of the merged business processes. Proper planning and selection of technology tools is crucial for maximizing efficiency and avoiding technological pitfalls in the integration process.

The technology integration typically includes:

• Collaboration and Communication Platforms: One of the first steps is to ensure that the merged companies can easily communicate with one another. It is important to have a shared calendar allowing meetings to be easily scheduled, a single messaging platform for collaborating, and a single email platform for communicating. This can be tricky as if you have one company on Microsoft Teams and another using Google Workspace, neither will want to change and the platforms often do not integrate very well. And the migration path from one platform to another can take months.
• Centralized Knowledge Repository: Establish a secure, cloud-based knowledge repository to ensure employees from both organizations can access shared documents, policies, and training materials.
• Unified Data and Software Systems: Consolidate key data management platforms and business software to create a central source of information and reduce duplication. This is typically the most complex piece and is often done in a phased-approach. It may include Enterprise Resource Planning, Professional Services Automation, Customer Relationship Management, Data Warehousing, ETL, Marketing Automation, Business Intelligence, HR Systems, Project Management Systems, as well as other industry or company-specific tools.
• Robust IT Support: Augment internal IT support to facilitate onboarding employees to new systems, troubleshooting technology issues, and ensuring data security.
• Training and Adoption Programs: Provide comprehensive training for all employees on new technological tools and platforms to enhance user adoption and optimize workflow efficiency.

Your IT teams, especially the CIO or CTO leading them, will have their greatest test during this transition. This isn't about choosing 'our tech' vs. 'theirs' – it's about rapid assessment of what's absolutely mandatory to keep the new organization running while creating a future-focused strategy.

Measuring Success

Measuring the success of an integration goes beyond financial metrics. It also includes KPIs for cultural integration, employee engagement, and customer satisfaction.

Feedback should be include qualitative feedback – encourage honest conversation at company meetings, ask tough questions of those on the front line, have honest conversations with clients to get their pulse, and you'll quickly glean more than data alone can ever reveal. This allows you to identify any urgent issues so that you can quickly respond.

Think of this integration as an journey with checkpoints along the way. You might find yourselves ahead of schedule in some areas, while others need course correction. This is all normal and the key is being responsive, showing progress, and gaining the trust from your teams and clients.

The Integration is NEVER Over

Integration is an ongoing journey of cultural and operational refinement. The 'us versus them' mentality can resurface, threatening progress.

Leaders need to stay vigilant. The new culture lives in mentorship, team projects, shared recognition, and empowering those you gained in the acquisition to have a voice and stake in where everything is headed. There might be hiccups. You might find yourselves revisiting painful discussions. Don't pretend those issues disappeared - deal with them openly.

Summary

It's clear that the 30% of acquisitions that succeed do so because they prioritize culture and integration. Acquisitions can be immensely successful, but it's not magic. It takes real work, way beyond due diligence. So, when you hear of that next big merger, ask yourself if those leaders grasp the massive challenge (and the immense potential) waiting for them.

FAQs

1. What specific financial metrics and indicators should be evaluated to assess the true value of a company? When evaluating the true value of a company, it's essential to look beyond the surface-level financial metrics. Delving into EBITDA, for example, provides insight into the company's operational profitability by excluding the effects of financing and accounting decisions. A comprehensive cash flow analysis, distinguishing between operating, investing, and financing activities, can reveal the company's ability to generate cash sustainably. Debt levels are equally telling; a company with manageable debt relative to its equity suggests financial stability, while excessive debt might signal potential trouble. For instance, a tech startup with rapid revenue growth but negative cash flow could be investing heavily in development, signaling future profitability or financial recklessness, depending on other financial health indicators.
2. How does one effectively assess the company culture and employee satisfaction of a potential acquisition?Assessing a company's culture and employee satisfaction requires a nuanced approach. Engaging directly with employees through interviews or surveys can provide valuable insights into the company's operational dynamics and morale. Additionally, examining employee reviews on platforms like Glassdoor can offer unfiltered perspectives on the company's working environment, although it is important to remember that reviews can be manipulated. An example of this in practice is when a potential acquirer of a marketing firm conducted anonymous employee satisfaction surveys, uncovering concerns over leadership styles that were previously unknown, influencing the acquisition strategy to include leadership development programs.
3. What are the common legal pitfalls or regulatory considerations to keep in mind during the acquisition process? Navigating the legal and regulatory landscape is crucial in any acquisition. This involves a thorough legal due diligence process, reviewing contracts, employment agreements, and compliance with relevant laws. Intellectual property rights, for example, are a critical area, especially in industries like technology and pharmaceuticals, where patents and trademarks hold significant value. Regulatory considerations vary by sector; a healthcare company acquisition requires scrutiny of compliance with healthcare laws and regulations such as HIPAA in the United States and similar laws elsewhere. An illustrative case involved a multinational corporation acquiring a smaller competitor, only to discover post-acquisition that the latter was embroiled in a legal dispute over patent infringements, impacting the deal's value negatively.

Your Thoughts?

Have you lived through a merger? What went well? What went terribly wrong? Share in the comments!

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About Me

Hello, I'm Barry, a Strategic PM and Operations Leader, I help companies make more money while saving costs. I do this by increasing profitability and developing project and operational efficiencies. Driven by a fascination with harnessing the potential of technology and AI, I excel at delivering complex global solutions and building client partnerships. Recognized as a Top 50 Project Management Leader and I hold certifications from PMI and as a Scrum Master.

Tags: #acquisitions #mergers #leadership #integrations #culture #cto #coo #ceo #partnerships #StrategicAlignment #BestPractices #MergersAndAcquisitions #CLevelInsights