Five Roadblocks to Successful Acquisition Integration

There is no doubt about it. The current financial conditions are going to put numerous companies on the market. Many of these organizations have never experienced this type of downturn before. Pragmatic CEOs are looking at survival scenarios, either through a merger of equals or by actively courting white knights. Meanwhile, leaders who showed fiscal restraint in the past are now poised to take advantage of these circumstances to grow their businesses and position them to be even stronger for the future upturn.

However, if care is not taken in the assimilation process, much of the value creation involved in the deal can be lost. This is not the time to put aside best practices in acquisition integration. In fact, due to the current volatility of the marketplace and the level of risk involved, the thoughtful application of these principles is more important than ever.

This issue of Executive Insight is designed to help you avoid some of the common errors senior executives make when making acquisition decisions. By paying careful attention to these issues, you can create a process that will accelerate the creation of value, reduce the loss of productivity during the transition and create a combined organization that is superior to the sum of its components.

Roadblock #1: Lack of a Vision for the Future
Attempting to integrate an acquisition without preparing a vision of what the new company will look like is similar to starting out on a road trip with no maps and no destination in mind. And yet, this key element is often overlooked when two companies come together. One of the first steps in considering an acquisition or merger is for the CEOs and top teams from both enterprises to meet and outline a very clear and convincing reason as to why this blending of organizations should occur.

Compelling visions are usually created out of a determination that there are strengths that each organization brings to the table. This process is deeper than merely identifying so called "economies of scale" or merging redundant "back office" operations. Carefully assessing the cultures of the acquiring and target companies can identify important similarities and differences that may impact the integration process and even the value of the deal itself. For example, which culture offers a strategic competitive advantage for the future? What can we take from Company X that we can exploit because the new vision or strategy requires us to do so?

The vision is an effective road map, particularly for those who may still cling to the old agenda and need guidance to change direction. It should be very quickly communicated throughout the organizations so that people can say, "Yes, I get it. I know where we're going."

Roadblock #2: The Shadow of the Leader
The acquisition integration process can often be thwarted when the sheer personal power of the CEO is inseparable from the culture of one of the organizations. This can be especially true when the executive is near the end of a long career and sees the acquisition as a "legacy." When a founder CEO recognizes that there may be a change in the culture of "my" company due to the requirements of the new vision, it can be very threatening to him or her as a person.

Unless the chief executive is able to hold a mirror up to his or her own behavior, issues of vital importance may be concealed and never find their way to the table for discussion and resolution. CEOs on both sides of the deal need to acknowledge this possibility and put their egos aside to allow objective focus on the investment thesis.

This conscious process must be anchored in the concept that, "It's okay for me to let go of what I thought was really important in my culture because I now know it's not adaptive in the new environment." Unfortunately, many CEOs cannot achieve this objectivity. In these cases, the board of directors may have to step in and take action in order for the deal to move forward to a successful conclusion.

Roadblock #3: No Management Due Diligence
No one would think of going forward with a deal until extensive due diligence has been completed in the areas of legal and finance. People often find these concrete issues easier to deal with than the so-called "soft" issues such as those involved with talent management. However, failure to assess the senior management talent pool from the viewpoint of the new vision can cause major slowdowns in productivity once the deal closes. Organizations need to gain a competitive edge by quickly and accurately assessing their leadership teams before the deal, and making incisive decisions on placing the right people in the right roles immediately after the close. This can be achieved by answering five key questions during a methodical management due diligence process: