"a" For Effort

Big-firm megamergers may monopolize the headlines, but smaller companies remain the most active players in the mergers-and-acquisitions game. In 1984, for instance, 80% of all acquirees had revenues of $100 million or less. And while the deals are consummated for a variety of reasons, their ultimate success often turns on management's ability to integrate one company's sense of identity and purpose with another's.

"Most [mergers] don't work," declares Claudio Serafini, president of Serafini Associates, a Silicon Valley-based consulting firm specializing in organizational development and strategic planning. In his 30-year career, Serafini has served as an adviser on numerous mergers and acquisitions. The ones that work best, he says, are "predicated on hiring good people -- and that means Company A has got to be very sensitive that [members of] Company B get treated like they're part of the original team."

One Serafini client who shares that belief is Jack Harris, the 43-year-old chairman and chief executive officer of Acrian Inc., a maker of power amplifier components and subsystems, also based in Silicon Valley. Harris, moreover, has had the opportunity to test his faith in recent years, as Acrian has struggled with the acquisition of a company twice its size.

It all began in 1982, when Acrian was four years old. At the time, it had a solid $8 million in annual revenues, and about 125 employees. Harris was convinced, however, that the company had to grow quickly to the $20-million-a-year level in order to establish credibility in the telecommunications and defense-industry markets. After surveying his options, he decided that Acrian could best achieve this "critical mass" by making an acquisition. He soon settled on a specific target: Communications Transistor Corp. (CTC), a wholly owned, 240-employee subsidiary of Varian Associates Inc.

As it happened, Varian was eager to shed itself of CTC, which had lost $3 million on sales of $12 million in 1982. Harris, for his part, saw CTC as a good buy. Its problems notwithstanding, it had a high profile in overseas markets and a product line that neatly complemented Acrian's at the lower-frequency end of the spectrum. Moreover, it came with some $4 million in receivables, against which Acrian was able to borrow heavily. Thus, for almost no cash up front -- and with substantial tax benefits down the line -- Harris could lift his $8-million-a-year company to the magic mark of $20 million with one stroke of the pen.

By temperament, however, Jack Harris is not strictly a numbers man; more than issues of productivity and liquidity, he brooded about the merger of two very different styles of corporate culture.

"My main objective," he explains today, sitting in his San Jose, Calif., office, "was maintaining [CTC's] sales level while getting rid of [its weaker products]. But that raised the question: why was the company losing money? Is there anything we can do to change their losing attitude and help turn them around? See, at Acrian, we were on our way up; we were used to taking risks. CTC, on the other hand, had become a cautious organization accustomed to preserving the status quo. If you want to put it in sports terms, imagine the mind-set of a 17-0 team meeting one that's 2-17."

Harris faced a formidable task. Even under the best circumstances, he knew, holding on to good employees is a delicate proposition in Silicon Valley, where the "winner" mentality often turns engineers into expensive free agents overnight. Hoping to set a positive tone, he addressed the morale issue directly in several public appearances before the CTCers. Meanwhile, he began to map out a detailed blueprint of the newly merged venture, carefully calculating the number of positions the expanded company would need to fill, and the number of bodies available to fill them.

In planning the transition, Harris was guided in part by his own experience at Fairchild Semiconductor Inc. in the late 1960s. After a period of heavy growth, that company fell on hard times, and the board imported several senior managers from Motorola Inc. to take charge. The new bosses created, according to Harris, "as close to a hostile-takeover situation as I've ever lived through. They came in saying, in effect, 'How can you guys be any good?' It was an overnight change. One day you worked on trust and good feelings, the next day politics and posturing were your keys to success. What happened after that was absolutely predictable. First, communications broke down, then the whole esprit de corps collapsed. Pretty soon, all the movers and shakers had walked out the door -- about 80% of them, as it turned out, to go off and start their own companies."

Determined to avoid such an experience in the Acrian-CTC merger, Harris brought in his old friend and mentor Serafini to help smooth the transition, and announced that his first priority was making sure all the employees at CTC felt fairly treated, whether they stayed with Acrian or not. "We had to work quickly to minimize [their sense of] apprehension," he observes, "but we had to spend enough time on the interview process to make sure we reached the risk-takers and dealt with their feelings of defeat." While he wanted to go into that process with a clear sense of the personnel needs of the expanded company, the goal, he says, was to hold on to the best people CTC had to offer. "We were like a pro [sports] franchise, looking to draft the best available athletes, regardless of position."

Bill Bray, a CTC applications engineer, was one of the earliest draftees. Bray had been part of a core group at CTC struggling to stay motivated in the middle of what was, in his words, "an essentially leaderless situation." He admits now to having heard rumblings about a buyout deal from ex-CTCers who had moved over to Acrian well before the merger.

"Right before the announcement," Bray says, "the rumors were really flying. The worst-case scenario was that everyone would be fired on a Friday, with perhaps a few brought back the next Monday. Or that [Acrian] wanted none of our people or equipment, only our customer base. Morale was low, but it was like we'd already boiled ourselves down into this tight-knit group that was determined to stay on. We had a sense of camaraderie, and it held over through the transition -- which was both good and bad."