Acquire in haste, repent at leisure

Very often, the hard work on an acquisition only begins when the deal is done

With any merger or acquisition, clear communications can help quell unrest among staff. The acquiring company will want to ensure they retain their new staff.

You don’t have to look very far to find examples of failed mergers and acquisitions. Among the most famous was the ill-fated marriage between car makers Daimler and Chrysler.

Culture clashes along with incompatible structures and other issues led to a messy divorce in a fairly short period of time. Salutary tales like that serve to highlight the necessity for a strong post-deal integration strategy.

“Every company has a unique culture, and a clash of cultures can derail an integration,” notes Deirdre Geraghty of A&L Goodbody. Geraghty is based in New York and is a partner in the firm’s Corporate and M&A group. “In order to avoid this, the buyer needs to have a deep understanding of both the target's culture and its own and identify where there might be clashes early on.

“The buyer should have a clear cultural vision for the combined entity and a strategy for embedding this culture in the combined entity.” 

Deirdre Geraghty of A&L Goodbody, New York, says it is vital for management to quickly act upon their performance strategy for their newly acquired business.

Another problem she notes is poor performance in the buyer's business post-acquisition. 

“Management teams can often become distracted by the integration process and end up neglecting the underlying business. This is why it is critical to have clear integration plan and to execute on it quickly.” 

As with so much else in M&A and business generally, advance planning is crucial. “It’s important to have an acquisition plan with predefined criteria,” says EY partner and Cork Chamber of Commerce president, Ronan Murray. “These criteria can include the targeted value range, areas of potential for future growth, as well as operational and integration synergies.

“Having a plan in place, coupled with robust financial, commercial, legal and HR diligence as part of the process, will allow buyers the optimal platform from which to ensure the acquired entity will be a good strategic fit for their post transaction expanded business.” 

Very often, the success or failure of a deal comes down to the people working in the two organisations. Those in the organisation being acquired may feel discommoded and consequently demotivated by the change in circumstances.

The inclusion of newcomers from an acquired company in the leadership team of the merged entity can provoke disquiet among existing members. The list of potential problems is a long one.

“People management is central to a successful transaction and integration,” Murray contends. 

“Every buyer will be focused on employee retention as part of a deal. This will help ensure a smooth transition and that employees remain focused on driving the business forward under new ownership. Communication is key to a successful integration.

“Address any concerns early and communicate the plan with staff and key management. While additional members will be added to the senior management team to enhance it, the core management team will ultimately be responsible for delivering the business plan set out at completion.” 

Holding onto key staff can also be an issue.

“At EY, we are seeing an increasing number of management incentive plans (MIPs),” says Murray. 

“These have proven to be a successful way of retaining key talent in the business post acquisition. “An MIP enables a management team to participate in the future equity upside of a business as it scales.” 

Deirdre Geraghty agrees that the people element can be one of the most difficult parts of the integration process.

“An acquisition can lead to uncertainty and employees in both organisations may fear for their jobs,” she explains. “This can lead to disengagement, productivity loss and retention issues amongst employees. To counteract this, the buyer should have a clear communication strategy and maintain an open dialog with employees throughout the integration process. The faster the process of identifying and communicating which employees will fill which roles, the better.

“For some key talent, the buyer may want to consider offering retention packages. If the acquisition will result in redundancies, the process should be managed carefully, and legal advice should be sought at an early stage.”