Stating "No Change" in the Short-Term Can Cause Longer-Term Value Erosion
By Jack Prouty, President, M&A Leadership Council
A year or so ago Jim Jeffries (Chairman of the Council) and I conducted a number of executive briefings to understand various companies’ approaches to M&A integration. On two occasions we heard what we would describe, from our experiences and expertise, as a “worse” practice: Do No Harm! Their approach was that in the first 12 months after close of the transaction they would not make any changes to the acquired company. They headlined this approach as “Do No Harm.” Jim and I reacted with, “Too bad, because with this philosophy you can do a lot of harm.”
When a company is acquired, people expect (and often fear) that change will occur. If you send the message that no change will occur and that the business will remain “as is” for the next 12 months then you entrench the current way of operating and build strong resistance and resentment to making change a year later. Additionally, employees are not naïve: they know that certain jobs are redundant, obvious cost efficiencies need to be implemented, and clear changes in operations are required. With no change a segment of the population will be carried for the next year before their positions are terminated, each company will continue to operate in their current mode, and parallel systems and processes will be maintained. Instead of No Harm, the opposite is true…. lots of harm is created, value eroded, personal resentment strengthened and valuable time lost before moving to the new “integrated” business.
We are not prescribing to slapping the two companies together as fast as possible without being conscious of the people and cultural issues involved. We should also be sensitive to the operating differences of the two organizations. However, there are ways to manage the people issues as well as effectively address concerns about interim business operations while still planning and executing the integration to achieve the expected value of the deal.
No matter how significant or minor the actual integration will be or the time horizon under which you’re operating, there will still be (and needs to be) changes to the acquired organization. Even companies that are acquiring a business significantly different from theirs, in which there may not be obvious areas for business consolidation, the message should still be clear and constant….. there will be change. At a minimum, there will only be one senior management team; there will be certain “non-negotiables” under which all employees of the combined company must adhere, etc.
Our experienced view, as well, is that when it comes to redundant activities, overlapping roles, conflicting business operations, or underperforming assets (including employees), quick decisions and rapid actions are needed as soon as possible after close. Get it done and over with, then move on and invest in the “go forward” people and business operations. It is far better to do this than to drag these obvious issues out over an elongated period of time, which in the end, creates greater resentment, resistance, and value erosion.
As always, there are caveats and nuances to the statements above, and we discuss these in our pubic training session, “The Art of M&A Integration.” Certain integration decisions may be consciously deferred for sound business reasons, such as the need to stabilize a business and address the people issues before you integrate. You may need to implement an interim state before achieving the end state, and there may be other considerations that affect the speed and level of integration needed. But the constant message upon close (and even during the pre-close) to the organization is that there will be change: that it will be timely, communicated openly, and conducted fairly, but effectively. Then when the specific action steps are taken, expectations have already been set and there are no surprises. Making no change for an artificial time period, whether it is 6 or 12 months, is to do significant harm within a M&A effort and our wish is that all executives abandon this false philosophy of “Do No Harm” when discussing their M&A approach.
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For additional information regarding Florida business sales, acquisitions and valuations, please contact Eric J. Gall at Eric@EdisonAvenue.com or 239.738.6227. Also, visit our Edison Avenue website at www.EdisonAvenue.com or my personal website at www.BuySellFLbiz.com.
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