Managing Mergers 26 Acquisitions

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					    Managing Mergers & Acquisitions                M Manchester’s Best Practices Report

          Mergers and Acquisitions

                  BEST PRACTICES REPORT

                            Executive Summary

                                Dr. Steven E. Glauser
                  Managing Consultant & National Practice Leader
                      Organization Effectiveness Solutions

Manchester, 2002
1735 Market Street 43rd Floor           Philadelphia, PA 19103
Voice 215.563.7800                      Fax 215.563.0303
          Managing Mergers & Acquisitions                 M Manchester’s Best Practices Report


70% is the failure rate of mergers and acquisitions. Failure is defined as not achieving the
returns expected based on the investment of time, effort, money and the toll on human assets
in driving the M&A in the first place. This summary discusses why M&A’s don’t work, and
the major success factors for those that do. This report covers “lessons learned” and best
practices related to the process of combining two companies that have already agreed to
become one. The primary focus is on cultural and human resources challenges, not on general
management concerns, operations, finance, marketing, and so forth.

Business Week reports that “most big deals don’t deliver,” based on an examination of 150
deals worth more than $500 million from January 1993 through July 1998. The record shows:

        30% - Substantially eroded shareholder returns
        20% - Eroded some returns
        20% - Neutral returns
        23% - Created only marginal returns
        7% - Created substantial returns


The most common reasons why M/A’s don’t meet expectations and even fail:

             Weak leadership
             Lack of compelling strategic rationale
             Unrealistic expectations of potential synergies
             Inadequate people and cultural due diligence
             Poor implementation planning and execution
             Inadequate internal communications
             Cultural differences
             Failure to act decisively on key integration decisions/merger problems
             Lack of a process for gaining employee commitment
             Loss of key talent
             Failure to adopt the best practices of each organization
             Failure to manage the impact of change on people

      Manchester, 2002
           Managing Mergers & Acquisitions              M Manchester’s Best Practices Report

Consequently, a “deal” that is wrong to begin with on common dimensions like purpose,
price, partners, timing, and management can’t be saved by competent handling of the post-
deal phases. On the other hand, even a marginal deal can be saved and turned into a
successful combination successfully executing on the cultural Human Resource strategies and
approaches outlined in this report

Despite the merits of the M/A, the ultimate level of success will be determined by the
relentless thinking and effort put into the details of implementation: data gathering, planning,
deployment, and review. And the most influential factor by far is the handling of human
resources and cultural issues.


Our research, experience and interviews with leaders show that there are five major
components      affecting       success:      Diagnostics/Data        Gathering,       Planning,
Leadership/Management, Communication, Implementation and HR Systems. For each
component, we’ve distilled our findings into a few “critical success factors” as follows:

       Diagnostics/Data Gathering

          Include in due diligence a culture and HR audit (programs, plans, and practices).
          Collect data on each organization’s position in the “corporate life cycle” --
           differences between the companies could have a significant effect.
          Understand the point of view from employees of both organizations by conducting
           targeted interviews and focus groups.


          Establish a “Merger Transition Team” early in the process with senior managers
           from both companies -- responsible for planning, deployment and review.
          Bring in outside expertise - managing the behavioral dynamics of merger.
          Triage merger related problems, designing interventions for the areas most in
           pain/hardest hit.
          Manage the interim organization - establish temporary infrastructures. Provide
           adequate time and resources for the integration function.

      Manchester, 2002
     Managing Mergers & Acquisitions            M Manchester’s Best Practices Report


    Provide a clear sense of corporate direction; gain alignment at the top on vision,
     strategy, and priorities.
    Appoint one well-respected top manager with formal management responsibility
     for combining the two entities (e.g., the leader of the “Merger Transition Team”).
    Get to know the other firm’s culture - decode for employees personality traits of
     the new business partner.
    Establish priorities for the integration.
    Protect productivity/keep people focused.
    Set up sub-transition teams for integrating major lines of business and functional
     areas, and for transition management components.
    Forge people connections - create communication exchanges with top managers
     and key teams from both firms to focus on common goals and strategies to meet
     these goals.
    Give all senior managers -- both companies -- opportunities to influence vision,
     strategies and policies.
    Grow leaders at all levels of the organization to carry the message and model the
    Ensure new leaders and new teams get off to a strong start.


    Strategies
      Create internal and external communications plans.
      Assign one person to be responsible for managing the communication process.
      Managers need to take employees into their confidence.
      Explain rationale - give people reasons to make the merger work.
      Be up front with bad news.
      Be consistent and clear on a few core messages.
      Address the needs of different stakeholder groups.
      Monitor effectiveness through feedback systems.
      Adjust/modify the plan as often as necessary.

Manchester, 2002
    Managing Mergers & Acquisitions              M Manchester’s Best Practices Report

   Techniques
     Coach executives, generally and for each communication event.
     Conduct frequent meetings with acquired employees, including participation by
       top managers – (“Merger Dialogues”).
     Communicate repeatedly, redundantly.
     Use multiple media: face-to-face, letters, memos, videos, bulletin boards,
       E-mail, voice mail, company newsletter, telephone hot line, etc.
     Start up a merger/acquisition newsletter.
     Exchange literature and documentation (between companies).
     Set up to use the informal “grapevine” (i.e., to get and send information).
     Manage news releases.
     Coordinate external and internal news releases.


   Gain alignment at the top on vision, strategy and priorities - deploy the alignment
   Make staffing decisions as soon as possible.
   Move fast to keep valued people.
   Monitor effectiveness of communication – “Pulse Points™ data gathering
   Put into place a new set of “reinforcers” strong enough to shape the way the newly
    combined organization needs to think and behave.
   Identify and set explicit expectations for people to adopt a “critical few” behaviors,
    practices and operating principles for making the new company a success.
   Determine the most significant conflict points between the two cultures and work
    to reconcile them and/or learn to live with the differences.
   Combine the best traits of both companies’ personalities, vs. adopting that of the
    dominating organization.
   Engage senior managers of both firms to participate in on-going executive-level
    decisions forums.
   Arrange inter-company social functions.

Manchester, 2002
            Managing Mergers & Acquisitions             M Manchester’s Best Practices Report

        HR Systems

           As part of the due diligence, obtain data on policies, plans, and practices in these
            key areas: Selection, performance management, employee relations, compensation,
            benefits, and employee/management/executive development.
           Step back and reevaluate all of HR systems, policies and programs from the
            standpoint of what is needed to drive the future performance culture.
           Workforce reduction - cut once and cut deep. Be up front about why.
           Provide specialized training to help employees prepare for the dynamics and
            pressures of a merger.


 The essential building blocks of the effective organization remain the same before, during and
 after a merger or acquisition. Attending to them during the infancy of the “new” organization
 accelerates and gives direction to its development and enhances the organization’s success.
 As research and experience demonstrate, these keys unlock sequential doors in establishing
 new direction and giving impetus to the new strategy.

1. Vision                                       4. Resilience
   – Paints picture of a better future             – Self-management amid ambiguity
   – Inspires, engages & aligns others             – Adjusts responses to match business needs
   – Transforms intent into daily action           – Anticipates and champions change

2. Commitment                                    5. Learning
   – Stays the course                               – Encourages sharing of diverse perspectives
   – Sustains energy and enthusiasm                 – Applies experiences to new challenges
   – Holds self and others accountable              – Accelerates mastery of new skills/technologies

3. Collaboration                            6. Discipline
   – Values and nurtures relationships         – Establishes management systems/processes
   – Creates partnerships across boundaries    – Plans & organizes tasks, time and resources
   – Empowers and develops others              – Practices essentials of management

  Manchester, 2002
          Managing Mergers & Acquisitions              M Manchester’s Best Practices Report


Manchester Organization Effectiveness Solutions is dedicated to improving organizational
performance and individual and team effectiveness. Manchester’s services and programs are
designed to meet the unique needs of organizations implementing difficult change initiatives.
Our clients range from Fortune 500 companies to medium-sized organizations in public and
private sectors. We serve them nationally from offices staffed with credentialed, seasoned

Manchester’s specialty in M&A’ is assisting organizations with large-scale, broad-based
change implementation. Our roles have ranged from primary change management project
directors on merger/acquisitions to a “partner” working in collaboration with a client
organization’s transition team.

The experience gained from these roles allows us to assist your organization in developing
effective merger integration strategies and achieve implementation success. We work with
people at all levels to protect productivity, manage culture conflict, and build corporate

      Manchester, 2002
      1735 Market Street 43rd Floor         Philadelphia, PA 19103
      Voice 215.563.7800                    Fax 215.563.0303

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