Your business, unlike your competition, is doing well and growing. Or, perhaps your growth has reached a lull and you'd like to rectify that. In fact, everywhere you turn you see opportunity—something you'd like to capitalize on by acquiring another company that will expand your product or service in some way. However, buying a business is never as simple as it sounds.
"Integrating an acquired business is always a challenge, and poor integration is the leading factor for a failed acquisition," says Neil Shroff, managing director of Orion Capital Group in Menlo Park, California, who has been a part of some 50 acquisitions on both sides of the ledger. "In most cases, the strategy people on the buyer's side have [results in] a difficult time demonstrating to middle and upper management why this deal makes strategic sense, especially if they were left out of the decision-making and planning process. It's like buying a brand new shiny red $200,000 Ferrari without telling your spouse and then trying to explain how he or she is going to love driving it."
The key to successful integration, Shroff says, is getting your management team involved in planning properly for what happens after the deal is closed. In other words, buyers tend to get stuck thinking about how to close the deal rather than thinking ahead in terms of how they plan to integrate their new acquisition so that it can deliver on all the spreadsheet promises. Waiting makes sense at one level because many buyers want to wait until the deal closes and "the ink is dry," says Shroff, before they spend the time and social capital involved in completing the merger. But waiting too long can spell disaster as you could face a full-scale revolt from a management team that feels something has been dumped in their laps. That means, therefore, that to pull off a successful acquisition with the help of your entire team, you'll need to walk a fine line between starting too early or waiting too long to get everyone's buy in.
Shroff says it makes sense to wait until you think it's about 50 percent certain that the deal will go through (you should be well past the letter of intent/term sheet stage, for instance) before beginning your full-court press to get your entire team involved in making the acquisition a success.
What follows are some other pointers from Shroff on how you can prepare your management team to buy a business:
When you're confident the deal is going to happen, it's time to start looping in the people that will be managing the new business on the details of when and how the deal is going to be completed. When you have their buy-in, the planning downstream is likely to go more smoothly.
When talking to your managers, be crystal clear about the strategic reason(s) you're making the acquisition. This will enable them to understand why the acquisition is critical to the current and future success of both companies.
Use Incentives to Maintain Focus
When an acquisition looms, it can take your management team's focus away from running the day-to-day business. One solution can be to create incentives, financial or otherwise, that will reward your managers for meeting both short- and long-term goals associated with the performance of the acquisition.
Unleash the Hounds
If you were waiting for any one stage at which to get your management team actively involved in the acquisition, let it be the stage at which you begin the due diligence, the nitty-gritty analysis of whether the potential acquisition is all that its owners claim it is. There are a few areas in particular where your managers can shed light on problems or future liabilities that, tackled early, could save your company countless dollars and headaches.
- IT: One of the reasons a deal may not be successful is that the cost of standardizing IT platforms across both companies and retraining one of the companies may make integration too costly. That's why you'll want to put your IT manager on the case to evaluate the compatibility between the two systems.
- HR: Another reason an integration may fail is because of a mismatch in corporate cultures. "Corporate cultures are very difficult to change and so it is important to ensure the two companies are similar," says Shroff, which is why it's so valuable to get your HR managers involved. Another key strength they'll bring is the ability to analyze how personnel at both companies are compensated. If the target company employees currently receive higher compensation than your employees, for instance, a significant cut in pay or benefits might prompt them to leave after the acquisition. If the target company employees currently receive lower compensation that your employees, a significant raise will shrink the net profit of the target company. If payrolls aren't too out of line, however, you can then have your HR management team put a plan together to even the differences out.
- Accounting: Your accounting managers will be able to determine if extra people or software are needed to bring the acquisition's books up to your own accounting standards. That's an important question to assess because the extra cost of people or software would need to be invested by your company after the deal closes.
- Operations: "It is important for the operations people to understand how the company is going to be managed after the acquisition," says Shroff, which means getting them to answer questions such as, "Will the facilities of the two companies merge or remain separate? This is an important consideration in determining if there are excessive employees or managers after the acquisition and where the space will come from if the facilities merge.
- Sales and Marketing: Getting your sales and marketing representatives involved in the acquisition process is essential because these are the people that will be selling the new products or services that come with the new company. That means you'll need to assess their buy-in by getting them to answer questions such as: Do they feel they can sell the new products or services with the existing ones? Are there benefits of selling them together? Does the new company hurt your brand?
Shroff suggests leaving ample time after you have agreed to a purchase agreement to allow your management team to get involved in the analysis process. "While there is some risk with this, it allows the buyer to be fully prepared on their integration actions once it has been announced to the world and the employees," he says, adding that you also need to make sure that you make time to discuss with IT, HR, Accounting, Operations, and Sales managers each of their specific plans on how they plan on integrating the respective functions of the new company.
Because acquisitions can be very complex and time-consuming, Shroff also suggests that some companies might benefit from hiring an outside adviser who can help shepherd them through the stickiest of steps in closing a deal and then help iron out any wrinkles that might arise as the two companies begin to merge.