Which is Easier—Making the Deal, or Making the Deal Work?
While you wrestle with that question for a minute, think about how much money is at stake. Then consider the number of people in the two companies . . . all the careers that are involved . . . the lives you’re playing with here. You might also reflect on how all the other stakeholders are watching intently—your customers, suppliers, bankers, the public who owns your stock. And, of course, the press may be hanging around just aching for a hot story about how things are going wrong. Your competition would love to make a field day out of this.
Obviously there is a lot on the line here. The next few months aren’t going to be a day at the beach.
It’s interesting how a merger or acquisition is always based on a financial proposition. But once the papers are signed, success depends on management effectiveness. And no matter how well conceived the deal is, it’s not a good one if management fails to make it work.
- The integration strategy has to be right.
- The timing has to be right.
- The right people have to be put in the right places.
- It’s not enough to be busy—you have to be busy doing the right things. The situation is very unforgiving.
Now for the answer to the big question we asked at the beginning:
Out of every one hundred companies that cut a deal, seventy-five get cut to shreds in the months that follow. Making the deal is just a warm-up . . . the real job is making it work.
Frankly, there is no “school solution,” but this book sketches out a set of ground rules that have dramatically improved our clients’ odds for merger success. PRITCHETT has been consulting on merger integration strategy longer than anyone else in the world. We’ve learned a lot over the years about what works and what doesn’t when companies are being acquired and merged. We’d like to think you can benefit from our experience.
Let us say this: You think swinging the deal was tough? The closing is just the beginning.
Tighten Up the Integration Period Time Frame.
The most common complaint employees have in the typical merger sounds like this:
“Nothing’s happening . . .
Why don’t they get on with it? . . .
They’re moving too slowly.”
Instinctively, the employees seem to know what’s best. Certainly they know what they want, and that is for top management to get the merger over and done with instead of letting it drag on and on.
Employees need answers. They want closure. What they can’t stand is “not knowing” and having to continue working in an atmosphere of uncertainty and destabilization.
A lengthy, slowly paced integration is a high-risk strategy. Such an approach exposes the organization for a longer period to the damage that can be done by generic organizational problems brought on by a merger.
It’s worth noting that approximately seven out of ten mergers are either disappointments or outright failures. And the average merger transition spans about twenty-four months, usually twice the time that should be allotted.
We feel one of the key predictors of a merger’s success or failure is the number of months it takes to move from start to finish—i.e., the length of the transition period. If there is to be a true merger, an actual consolidation of organizations, we typically push our clients to get it done within a nine to twelve month period. That alone dramatically raises the odds of merger success.
Frankly, you don’t have time to take your time. If you do, problems will outrun you and productivity will drop through the floor (taking employee morale with it). As the saying goes, “Skate fast over thin ice.”
Acquiring and merging an organization represents uncommon growth. The situation calls for uncommon management, bold strokes, a rejection of status quo management.
There are a number of phrases we frequently hear when companies describe to us the merger integration philosophy they are contemplating.
“We think we should move slowly . . . we’re going to get it right the first time . . . we don’t want to make any mistakes . . . we don’t believe in knee-jerk decisions . . . it’s important that we minimize the change.”
Well, these are the wrong words. These ideas don’t work. They reflect a conservative mentality that is highly inappropriate for transition management.
You’ve got to understand that when word of a merger leaks out or is formally announced, you’ve already lit the fuse on this thing called change. Problems are off and running. Top management can sit around the conference table believing in the weak wisdom of a careful, slowly paced integration strategy, but merger problems tend to set their own tempo. The cadence changes immediately, and astute managers will recognize this. Mergers often fail because management lets problems get way out in front, and then tries to play catch-up. It’s the classic mistake, and these are the results:
- Problems swarm on you.
- Secondary problems develop.
- You end up trying to put out fires, and a crisis management atmosphere prevails.
- People start fighting symptoms instead of causes.
- The management resources of the firm become over-committed.
Once again, you simply don’t have time to take your time. This is going to be the year of the two-minute drill, where decisiveness becomes the high virtue and caution becomes a curse. Allowing yourself the indulgence of a slow reaction time is positioning yourself (and your company) to be a victim.
“Change” is a wild horse you have to ride if you wish to control it. Just try to stay on it while it pitches and bucks. It won’t grow tame merely by your standing outside the corral and waiting for some time to pass. And if you try to stand in its way, it will run right over you and drum you into the dirt.
We have a systematic assessment process called a Merger Management Review, and over the years we have used it to evaluate thousands of managers and executives when doing our soft due diligence. Our findings are very consistent: the best merger managers are those who are very unconservative. In fact, the best ones we’ve seen are more flexible than structured, more risk-taking than tentative, more aggressive than cautious, more decisive than deliberative, more creative than concrete in their thinking.
During a merger you need to become a bit of a gunslinger. There is real danger in waiting for problems to draw first . . . and you don’t have the luxury of taking time to aim perfectly. We’re not advocating that you proceed with wild abandon, but we do want to emphasize that the conservative, slow, methodical approach typically doesn’t cut it in a merger environment. That can be the most reckless strategy of all.
End of sample.
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