The Key to Success in Post-Merger & Acquisition Integration: Plan Around People
Benjamin Franklin once said, “If you fail to plan, you are planning to fail.” It’s a quote you may have heard before, perhaps agreeing with its sentiment but recognizing it as common sense—a cliché. After all, if you’ve grown a successful business or become a decision-maker at a larger firm, you must have learned the importance of planning along the way. Otherwise, you wouldn’t be where you are today.
But even the most experienced business leaders experience failure, and their postmortem explanations often embody a familiar theme:
“There were unforeseen circumstances.”
“It was impossible to see this coming.”
“The market has shifted unexpectedly.”
“We were met with unanticipated consequences.”
There isn’t a euphemism that can hide the real story: there was a failure to plan sufficiently.
Transactions Gone Wrong
Some of the most catastrophic business failures have resulted from mergers and acquisitions gone wrong. Moreover, whether it’s a lower-middle market acquisition worth $10 million or a merger of two publicly traded global conglomerates, more than half of M&A transactions will fail in some regard. These failures aren’t limited to financial consequences; the firms’ people are also heavily impacted.
The least consequential outcome would be for the deal to fall apart before it is consummated. Both parties walk away, having lost some time and resources but avoiding a more significant calamity.
An M&A failure with a mid-level of severity could be that the conjoining firms close the deal amicably but never experience the synergy they were anticipating. On the surface, this doesn’t seem so bad. However, the acquiring firm may have paid a premium price, thinking they could make 1+1=3. And if the transaction is heavily financed, large interest payments could further impact cash flows.
The gravest of merger or acquisition scenarios might involve undisclosed liabilities, a culture clash between staff, or significant differences in procedures, namely how clients are treated. These divergences might result in lost opportunities, severed relationships with long-term customers, and the potential collapse of two once-great companies, now one disorganized, dysfunctional entity.
The perils of M&A can be frightening, but they can also be avoided, mitigated, or minimized with thorough planning. So, where should your focus be?
Plan Around People: First, Foremost, and Frequently
In asset-light service industries like Architecture and Engineering, there is necessary, outsized importance on team dynamics and company culture. Individual employees aren’t tending to machinery or driving a truck, or assembling widgets on a production line. They interact with one another, with fellow sentient beings, each with their unique set of strengths, weaknesses, and emotions. Needless to say, combining teams is a lot more complicated than changing the sign on the building.
The challenge in planning around people in M&A is that employees are typically kept in the dark until the transaction has closed, meaning buyer access to personnel is mostly off-limits. During due diligence, the buyer will usually request to see employee-related files, including an organizational chart, employee census, and resumes for managers and other key staff. But an ardent buyer should go beyond these documents—much of what makes the team thrive cannot be found in a spreadsheet or pile of CVs.
Leaders from the acquiring firm should tap into any internal workplace surveys that the selling firm has administered to its staff in recent years. If nothing like this exists, an anonymous cultural assessment can be conducted under the guise of general company improvement. If you choose this route, approach cautiously; if a deal comes to fruition, employees may link the survey to the acquisition and feel misled.
Alternatively, cultural surveys can be done post-closing as part of a broader drive to acquaint the seller’s team with the new management. This approach can help foster trust, giving employees the sense that their needs and concerns are considered a priority and that culture is important to the buyer.
Interviews of both key and lower-level personnel should also be conducted early in the integration process and take a conversational format. Employees should not feel they are re-applying for their current job but should instead be encouraged to share their interpretation of company procedures, policies, and workflow. Leadership can use this opportunity to address any questions about the ownership change and quell any lingering anxiety an employee may have about the transition.
One-on-one bilateral discussions are conducive to positive first impressions and embolden employees to be forthcoming with their concerns or ideas throughout their tenure. In other words, they create an environment of trust and accessibility, which results in both short-term and long-term integration success. The last thing you should want is for your team to see their new boss as a stranger.
It is Never Too Early to Plan
As a firm looking to make a strategic acquisition, you should look inward before you begin to search for potential acquisition targets. Conduct a cultural assessment of your own staff and determine which factors have made your team successful and where there are areas for improvement. This self-evaluation will help you streamline your search and avoid culturally incompatible companies.
If you’re considering selling your firm soon, be proactive about understanding your people and culture. While the responsibility of integration falls more heavily on buyers, it is in everyone’s best interest to see the combined company thrive. Furthermore, firms with a well-defined mission, vision, and values will appear more attractive to buyers and could garner a higher purchase price.
While it is impossible to eliminate all risks from M&A integration, you can significantly increase your chances of success by taking a people-focused approach to planning and preparation. As Benjamin Franklin said, “Diligence is the mother of good luck.”
Watch SN’s on-demand webinar M&A: Post Deal Integration & Client Retention, where we focus on establishing a connection between a well-planned internal communication/integration strategy and successful client retention.