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Great Expectations: 5 Nonnegotiables for M&As

By Linda Pannock

April 23, 2018

Did you think negotiating was hard? You ain’t seen nothing yet! If you’ve made the synergies between both your companies apparent to everyone, things can get off to a supercharged start. Once the deal is closed, a wave of excitement and anticipation will surge through your two organizations. And yet, danger follows close behind. Those shared expectations of greatness—of immediate improvements, increased competitive advantage, near-instantaneous growth—can quickly evaporate into thin air. And with them disappears the energy to drive all the changes necessary for success.

The real challenge in M&As is not the deal. It’s the integration of two organizations, each with their own distinct operations and processes, cultures, and ways of getting things done.

Perceived synergies bring two companies together in the first place. And, ironically, it’s the inability to realize those synergies that kills the promise of our hard-earned M&A. According to Harvard Business Review, numerous studies put the failure rate of mergers and acquisitions between 70 and 90 percent—with integration a key stumbling block.[1] The obvious solution? Accelerate the integration process so we don’t lose the initial momentum of that supercharged start. Not surprisingly, given the option of a “do over,” 89 percent of acquirers said they would execute their transition more quickly.[2]

We at Ankura agree that a fast transition is important. However, M&A success is not just a matter of speed. After partnering with clients for over twelve years to make change happen, we now know that leaders must also intentionally adopt a few practical guidelines for accelerating change and realizing those expected synergies—a.k.a. design a specific set of “nonnegotiables” for the transition—before they start the integration. Here’s a set of five we’ve learned worked particularly well together.

1. SLOW DOWN to Go Fast

You’re coming to the negotiating table to create one organization from two. Do you have clarity and real alignment among your leadership team about what organizational structure and what leadership roles and responsibilities you need to have in place for the new enterprise to win? Don’t rush getting to alignment on this. At the negotiating table, people will tend to be almost hypersensitive about making sure both sides are equally involved and represented in the new entity. Aiming for equality is nice, but it’s usually not very effective when it comes to designing the organization you need. Once you step into the integration phase and see that what you’ve designed doesn’t work, this shield of “niceness” will fall apart.

Vet and revalidate those company synergies you identified during the pre-close due diligence process. If they are the right ones for both parties to pursue, put the right people in the right roles so you can doggedly go after them.

As you go about designing the new organization, also think intentionally in terms of “one company, one culture.” In every merger, one culture will naturally dominate, no matter how committed everyone is to being democratic and egalitarian. Which does the ONE culture need to be to win? Culture is driven by the behaviors of its leaders. Take early and firm stands to set the pace and clarify to everyone which behaviors are expected moving forward.

2. COMMUNICATE to Gain Commitment

You may be at the negotiating table for weeks, months, or years. During that time, your employees, customers, suppliers, and partners will not be privy to the details of the deal. As they say, nature abhors a vacuum. People in organizations will, similarly, fill a communications void with things that are not right or simply not true.

When the deal closes, you’ll be very familiar with the changes that are about to happen. But everyone else won’t. And those changes—whether they’re perceived as positive or negative—may be hard for people to embrace.

Start with empathy for everyone involved in and impacted by the deal. Don’t forget they are going through this change with you. Give them substance and value every time you communicate.

When it comes to sharing what’s happened and how things will be different, put your employees first—tell them what you know as soon as you know it. Start with a clear, transparent message and make a commitment that this will be the first of many communications. If your enterprise operates in multiple locations, make sure senior executives show up to engage in real change leadership conversations with your team. Since your employees will manage all the relationships from both of your “old” organizations, discuss with them directly how you want to relate to customers, suppliers, and partners as you all go through this change together.

3. HONE IN to Go Far

The deal has been announced broadly and now there are thousands of things to do. Avoid analysis paralysis by focusing and channeling all that change work through an integration management office (IMO), a small and temporary task force of dedicated individuals with the capability to identify, prioritize, and move fast on the work streams, processes, and systems that must be integrated.

Successful execution at speed will depend on your IMO’s practical planning and ruthless prioritization. It’s wise to start with revisiting the initial planning you did during the discovery phase of due diligence and breaking the work down into doable chunks. Bring cross-functional teams into the conversation to dispel any silo thinking that may have crept into your initial planning, recognize interdependencies, and create a more unified, collaborative approach.

Keep one question front and center: “What’s going to get us the furthest the fastest?”

Engage individuals on these cross-functional teams as dedicated owners of your 30-, 60-, and 90-day plans. The integration process is inherently unpredictable, so it’s worthwhile to track your synergy targets and conduct functional area reviews every week as you execute. Don’t be afraid to move on new opportunities for synergy that emerge or let go of an original plan for a better one. Learn and iterate. Stay flexible. Rinse and repeat until all the work of integration is completed.

4. PUSH DOWN to Accelerate Decision-Making

Through all this, the candle is burning. The longer it takes to realize those synergies you were counting on, the more disheartened and disengaged key stakeholders become. Focusing resources where you need them will help in this race against the clock, as will establishing accelerated decision-making and pushing the work that needs to be done down into all levels of the organization.

Distributed decision-making is efficient, effective, and fast. Especially when you use your IMO as “traffic controllers” during the transition.

Creating a reliable governance structure, one in which decisions are made closer to the point of execution, allows integration work to be pushed down further into all levels of the organization. Any areas in which decision rights are contested can be directed to the IMO for resolution. Incentives that encourage collaboration can also help drive people in the direction of sharing data and knowledge to speed decisions.

5. COMPRESS TIME to Build Urgency

Your initial communications about the integration can create a sense that “we’ve got to beat the clock on this.” A slightly aggressive (but doable) overall timeline that begins with a few strategic quick wins can start to generate momentum. Make those, as Senior Managing Director, Brian Bowman here at Ankura would say, “small enough to accomplish, important enough to matter.” Celebrate those wins when they happen and acknowledge the people involved to reinforce every iota of momentum you gain.

You’ll inevitably ask people to embrace changes that will probably happen faster than they’re comfortable with. Remain approachable and sensitive to the level of change required of each individual.

The pace of your integration gets established in your initial communications and is supported (or not) through the conversations that your leaders have with their teams. Identifying the “why,” “what,” and “how” of moving from the old to the new and what the role each person will now play can make it easier for individuals to commit to the new reality. Having frequent, honest communications about expectations as they evolve and about challenges as they show up will help people perform well under pressure.

Successful integrations are, indeed, a race against time. These five nonnegotiables reinforce each other and act like an engine to drive successful integrations. Close. Accelerate. Learn. Iterate. Deliver.


FOOTNOTES
1 Clayton Christensen, Richard Alton, Curtis Rising & Andrew Waldeck. “The Big Idea: The New M&A Playbook”, Harvard Business Review, March 2011. Accessed online November 10, 2017, at https://hbr.org/2011/03/the-big-idea-the-new-ma-playbook.
2 M&A Integration: Choreographing Great Performance (PwC’s 2017 M&A Integration Survey Report). Accessed November 10, 2017, at https://www.pwc.com/us/en/deals/ma-integration-survey/pwc-m-and-a-integration-survey.pdf.