Acquisitions: The first 100 days
Growing Business offers a blueprint for integrating your acquisitions
Fact one: The majority of business acquisitions are unsuccessful
Fact two: This is because most entrepreneurs fail to plan and implement an effective integration policy
Fact three: How you manage the first three to four months after the deal has gone through is crucial
Growth through acquisition can be a great way to move your business forward. However, most go wrong: the Hay Corp has found that 97% of mergers and acquisitions miss the target. The key is how well both businesses are integrated. This process can stand or fall on the quality of due diligence done before the deal is finalised and the integration strategy implemented in the first few weeks after.
Of course, a plan is only as good as the team implementing it, and you need a strong group covering the main departments (IT, financial, sales, etc) briefed and ready to go before the paperwork has been signed.
It also makes sense to bring in someone to head the integration. This could be you, but entrepreneurs aren't necessarily the best people to lead this key process, as the number of failed acquisitions suggests. As Colin Mills of The FD Centre says: “The skill sets required to make a successful integration are very different from those needed to close a deal.”
There are also other benefits to splitting the roles. Richard Glasson, chief operating officer at Gyro International, made four acquisitions during 2007 and agrees the roles should be separated. “The due diligence process is a confrontational period where, essentially two lawyers argue it out,” he explains. “So we put in place a two-track strategy as it's important to keep the relationship warm.”
The due diligence will be your first opportunity to speak to key clients and ensure that they aren't going to leave once the deal has been signed. Glasson says that he has even pitched deals to a client with a company he is about to acquire. “Clients like this, as they appreciate the honesty,” he says.
The role of the outgoing owner is also key as, for many small businesses, they are crucial to the day-to-day running of the company. So it's important that they have fully bought into your gameplan and won't cause problems with staff or clients, inadvertently or deliberately.
Your lawyer should have ensured that there are sufficient non-disclosure and non-compete contracts in place to protect you. If either the owner or any key staff are able to go to your clients and customers and take their business without a lengthy time delay, then you are in serious danger.
Also, typically, vendors are brought into the long-term deal with an earn-out, although it will take more than money to ensure they are fully onside. They must also believe in what you are trying to achieve.
Immediately after the acquisition has gone through, there are likely to be a few nervous souls that need reassuring. This means that the first few days should be about open communication and panic prevention. Make sure you meet as many people as you can personally from all sections of the business.
“Don't forget the lorry drivers even if you have to go in at 6.30am”, says Mills, “as it is a bad thing if they hear it from a client when they arrive at the depot.” Also, your first day should be a Monday. “Don't do it on a Thursday or Friday, or people have the weekend to think about it,” says Peter Titmus, managing director of Networks First.
When you do meet your new staff, expect to be questioned, and make sure that you can provide clear answers from the outset. According to Glasson, there are usually three things staff want to know: Is my job safe, are we going to change the company name, and do I still report to the same manager?
“You need to reassure understandably nervous staff that the deal is in their interests,” says Glasson. “Always be honest and don't claim that your business will be a panacea that can guarantee more sales as this will only cause problems.”
You can tell them that change will occur, but that this will be for the best. However, how quickly that change should be implemented is a matter of debate. Colin Mills believes that changes need to be brought in as quickly as possible or you risk losing the advantages of why you bought the company.
However, Adrian Godfrey of HW Corporate Finance recommends waiting for a longer period until you have fully understood the business and then make all the changes in one go. Whichever strategy you choose, you must have your implementation team in at the first opportunity.
Grant Thornton's Alysoun Stewart says that a detailed map of the company must be made as soon as possible and this can be hard work. “Management resource is an issue and you really need an integration team in there from day one, right through that 100-day time period,” she warns.
Clients need to be contacted and reassured as soon as possible. It is important to make sure that there is no disruption to their overall service levels and that the relationship will continue to grow.
This is a time when you find out how good your due diligence was, as you may soon discover there are unhappy customers. These shouldn't be allowed to walk away, and it's important you get to the bottom of the problem. As with your new staff, it's vital to have open communication and pride reassurance.
Feedback from your implementation team, new staff and clients will be flowing in during this period. This should be informing your strategy of how you are going to change the company and merge it with yours. Written details of how you plan to manage the integration should have been prepared in detail before you bought the company, but don't be afraid to modify this in response to what's happening on the ground.
When Networks First bought ANS in June 2007, Titmus expected to be able to run a dual accounting system. However, this proved to be impractical and so the two systems were merged early on.
Although IT systems and accounts can be changed and combined to a set plan, shifting the culture of the acquired company can take more time. For instance, if the company you buy has a regimented nine-to-five way of working, yet you take a more flexible and results-focused approach, then this is a clash which you must address. However, don't be too quick to lay down the law. Human beings are creatures of habit and may respond negatively to sudden upheaval.
“You have to recognise that cultures are at the heart of the way people operate,” says Adrian Godfrey a partner at HW Corporate Finance. “If you don't, then you are going to struggle with a company where the culture is different to yours.”
Godfrey adds that you need to lay down the foundations of change during the 100-day period after acquisition, and this means talking to key staff and outlining your philosophy in detail. By cementing relationships with managers and high-performing individuals you will find it easier to achieve a smooth transition.
Your planned changes should now be underway. If you've not yet combined your account and IT systems, now's the time to do it, and you also need to take the plunge on reporting lines. This can be very positive, particularly if you have tools and methods that can benefit the acquired business.
This is also a good time to ensure that there's plenty of interaction between old and new employees. Joint projects should be launched, and your new clients should be experiencing the benefits of dealing with a larger company.
Damian Broughton, founder of Danbro, which provides accountancy services to contractors, has bought accounts from a number of different companies. He says: “We contact all customers over the phone as quickly as possible after we make an acquisition, but leave it for two to three months before we start to offer additional services, as we don't want them to feel bombarded.”
Hopefully, the majority of new staff are still with you and look like they are going to stay. Of course, some will have left, but you cannot afford to pander to the minority and must now boldly implement your changes. Culturally, there might still be some way to go if your company was very different to the one you bought.
However, as long as you have most of the key players onside and embracing your vision and values, then the foundations of overall cultural change should be set.
Changing from bottom up
David Evans is an experienced entrepreneur who has been making acquisitions since the 1980s. He believes that the incoming staff are the best ones to create an implementation strategy, although this must be done in the framework of his business. He always makes a presentation to the whole company after he buys a business. Then he aims to get the new staff to buy in to his philosophy, and unveils nine main parameters called the Grass Roots Management System, which cover the whole business. He then assembles a team of people to draw up their own plan on how they are going to fit into his business and begin the integration. “We then monitor the plan with key performance indicators, which are the same across the group. However, the plan is only as good as the people working on it,” warns Evans.
THE 30/60/90-DAY PLAN
Richard Glasson, chief executive at Gyro International, has a 30/60/90-day plan for when his company integrates an acquisition. There is always someone who is responsible for the plan, although that is never the person who brokered the deal. The first 30 days, in his view, should be about communicating with staff and showing that they aren't an interfering employer. He literally aims to do as little as possible for the first month. After 30 days they begin to introduce some of the tools and systems to the new company, although these are always presented as a benefit not an order. After 60 days, increased interaction is encouraged through joint projects, and the specifics of the business are addressed. However, Glasson will only acquire businesses that are both successful and culturally similar to his own. “My view is that you can't integrate a business that isn't already right for your company,” he says. “I think the integration should be an extremely straightforward process.”