Strategies: Mergers

One June morning in 1999, when Kevin Drury was having a breakfast meeting with his friend Harry Griendling, he looked across the table and made a breathtaking proposal: "Why don't we put our two companies together?"

Drury acknowledges that at first blush his proposed merger "didn't make sense." His company, IEA Business Solutions, was a software developer and consultancy specializing in data warehousing. Griendling's Staffing Solutions Group, on the other hand, was in the recruiting business. Granted, the companies were roughly the same size: about 30 employees. And both were based near Philadelphia. But their core businesses had nothing in common.

Yet as the two men hashed over Drury's idea, they realized that bringing together IEA and Staffing Solutions would have two key advantages: IEA could use the staffing company's contacts to expand its market, and Griendling's staffing business would gain access to IEA's technology. "They could build tools and solutions that would help our clients do recruiting and retention better," explains Griendling.

Still, workers at IEA and Staffing Solutions were understandably befuddled when their respective CEOs first presented them with the idea of the seemingly far-fetched merger plan. To win them over, the CEOs created an extraordinary process in which everyone had a voice.

As a first step, Drury and Griendling both assembled their senior managers and got their buy-in on the deal. That was crucial, since, Griendling says, he and Drury "were both prepared to walk away if these leadership teams gave the deal the thumbs-down."

Having cleared that first hurdle, the CEOs then met with everyone from both companies in a hotel conference room. They divided the employees into pairs, teaming each person with someone from the other company, and asked them to list the deal's pros and cons. Thereafter, by a show of hands, everyone agreed to take the talks to the next level.

A few weeks later the companies came together again, this time for an interactive session in which Drury and Griendling addressed all the issues that employees had raised in the earlier session. As the CEOs spoke, workers had the option of typing in their reactions on laptops. Those comments, which were entered anonymously, were instantly projected onto a big screen for all to see. "It forced all the issues to the surface so that they would be dealt with then and there," says Griendling, who then deployed the laptops for a first round of voting. On a scale of 1 to 10, employees at Staffing Solutions gave the deal an 8.3, while the IEA staffers gave it an 8.2.

At the conclusion of a third and final meeting, the deal's score was up slightly, to 8.7. But, Griendling emphasizes, the actual voting was less important than the process overall. "Our workforce appreciated being told about this in advance, being asked what they thought, and being able to participate," he says.

Griendling and Drury also feel that the democratic process forestalled a lot of the grumbling that typically follows a merger. "Often in a merger," Drury says, "people are worried about what will happen, and they stop working." Instead, when Staffing Solutions and IEA officially merged under the new name DoubleStar Inc. (#443), last December, workers at both companies knew what to expect and could hit the ground running. Seven months later DoubleStar was projecting revenues for this year of nearly $11 million -- roughly 20% more than the total of what the two companies had made on their own last year.

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