There have been a number of channel-related mergers and acquisitions over the last 12 months. In September alone, Capita, Telent and iomart were just a few of the companies actively acquiring new businesses. Such deals seem to indicate that many businesses remain bullish about their future prospects.
But there is no such thing as a sure bet. Indeed, over the last 20 years, I've been on both sides of the M&A fence and have experienced the good and the bad, seeing first-hand what can happen when integration goes wrong. So how do executives who spend millions on M&A deals make sure that a newly acquired company is effectively integrated, without losing what made it valuable in the first place?
Rather than leaping in head first and making sweeping changes, there is a lot to be said for leaving new acquisitions as autonomous brands and letting them run as normal while you get under their skin. Pushing forward with a needlessly rapid integration could wipe out incredibly valuable business processes that have been successful for years. In contrast, by slowing down and observing the new business in practice, you can assess the impact your changes will have on day-to-day operations. Businesses too often press ahead with creating 'efficiencies through synergies'. Yet they don't realise that, in doing so, they are wiping out the skills or knowledge responsible for the value which attracted them in the first place.
Stop, look, think
Due diligence can give a good understanding of a company's financial situation and how it looks on a spreadsheet. However, what it doesn't do is go deeper and provide an understanding of how the business actually runs. Businesses can be successful for a number of reasons. It could be that there is a great leadership team in place, an incredible sales team, or a unique corporate culture. Yet financial due diligence won't show this - such attributes are visible only after a deal has been completed.
It's easy to understand the urge to get started with integration as soon as the ink is dry on a contract. After all, the vast majority of companies have the same departments - finance, HR, sales and so on - and intuitively it doesn't make sense to run two at once. However, integrating departments without taking the time to get to know the processes and value that the new business can offer can do more harm than good.
This problem can regularly occur when, for example, integrating back-office functions. On the surface, there wouldn't seem to be any need to keep two back-office functions running concurrently. Yet many companies in the channel have successfully developed specialist back-office processes that have been built up over the years. We all know that delays kill deals and, given the sheer number of products, prices and rebates to sort through, many back offices have developed vital shortcuts that allow them to come up with the right vendor discount much faster than the competition.
By simply ploughing on with a merger of two back offices' functions, these key processes can be lost, meaning that a crucial competitive advantage is needlessly sacrificed. Moreover, disrupting productive rhythms that people are used to runs the risk that valued staff can quickly become disgruntled and leave.
Mapping it out
That being said, a slow integration is not the same as a passive one. Leaving existing operations in place allows businesses time to map out and evaluate all processes. Properly mapping a process doesn't just mean understanding the systems each employee uses and what they should be doing. It should capture all the activities that an employee does. This is especially important after a merger because different companies often use different departments for the same task. What might be handled by marketing in one organisation could fall under the remit of sales in another. Integrating two departments without being aware of all the roles they accomplish could leave key tasks unfulfilled.
Strong process mapping prevents this happening and allows for genuine efficiency gains. For example, we recent worked with a large systems integrator that was just going through the process of integrating a recently acquired business. Its initial plan was simply to integrate business functions by org chart. Only after delving into the processes of the newly acquired business more closely did it become apparent there was some great business value to be had by preserving them. Had this step been overlooked, it would have been a case of throwing the baby out with the bath water.
In an increasingly competitive market where all companies are looking to grow, it can be tempting to supplement organic growth with strategic acquisitions. But failing to plan properly can be fraught with danger. While M&A deals are done by accountants and lawyers, managing a successful M&A requires an exceptional level of operational skill.
Mike Hockey is a director at Roc
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