Mergers & Acquisitions: Leadership Insights on Navigating Integration

Mergers & Acquisitions: Leadership Insights on Navigating Integration

05.19.11

The M&A markets get a lot of press, most of it focusing on the movers and shakers behind major deals, how to accurately evaluate and price companies, and the effect of deal making on stock market performance. But precious little has been written about the role leadership plays in the post-merger or acquisition integration process, especially given the major impact it can have on achieving desired value from a deal. Because of the difficulty and high rate of failure of M&As, it is critical that senior leaders are armed with best practices regarding decision making, team development, and communication. Here are some questions that we are typically asked, with answers provided by Schaffer Consultants who have worked on integration with companies such as JLG Industries, MeadWestvaco, GE, and Merck/Schering-Plough. Q: With only one-third of integrations living up to expectations, what is the leader’s primary role in managing a successful merger integration? A: The senior leader is ultimately accountable for achieving a high ROI – i.e., making sure the deal yields results. Mergers and acquisitions are huge investments of time, resources, and energy, and the bottom line for any leader is to return value based on the investment that was made. Q: From a leadership perspective, what are the biggest challenges of navigating the integration phase? A: The major challenge is putting in place the right kind of integration organization – one with the time and bandwidth to handle the work. Integration cannot be done from the sidelines or on a part-time basis. In order to properly integrate two companies, the leader must put all of his/her resources into play, choosing an integration leader, managers, and team, and establishing a decision-making structure. Leaders should allow high-ranking employees to be temporarily relieved of “pre-merger” responsibilities to focus solely on the daunting task of integration, returning to those activities only once the companies are fully integrated. The second biggest leadership challenge is to set up a communications strategy, with senior leaders as the chief communicators. Senior leaders have to be intensively involved in communicating the deal internally – why it had to been done, its consequences, what will happen, the time frame, etc. They must communicate this in an honest, open and transparent way. Communicating to the external world, such as Wall Street analysts and customers, is equally important. The third challenge is to have a very clear set of goals – what we call “the merger intent”. It is critical to establish what will be accomplished by integrating two companies by setting one, two, and three year goals on a variety of levels. The leader must make sure everyone is aligned and get consensus around the vision. If the goals aren’t aligned, the integration activity can go off in all sorts of directions but may not hit the financial, operational, strategic, and organizational goals the company sets out to achieve. Q: How do leaders inhibit merger integration success? A: Some leaders inhibit M&A success because they believe they can control everything. The truth is, integrations are an ever-evolving learning process. Leaders must be open and flexible, and most importantly, willing to make tough decisions (and do so swiftly). This is especially true with staffing decisions. Leaders must not make decisions about who to retain and who to let go based on loyalty or friendship, but rather who is the best candidate for the job at hand – and who shares the leader’s vision. As the newly-formed company shakes up its roster, it is the responsibility of the leader to make those tough decisions, even if they are not always well-liked decisions. Q: What are the three key leadership traits of successful merger integrators? A: There are three leadership traits that are especially critical: 1) an openness to learning; 2) a willingness to make tough and rapid decisions (in certain cases without all of the data); and, 3) the ability to communicate honestly, openly, and transparently – positive messages and tough ones. Q: How does a leader gain the buy-in and enthusiasm for a deal from critical stakeholders? A: Once again, leaders should be experts at open communication – engaging stakeholders directly in the integration process. Leaders should even look for input from stakeholders, including employees, customers, investors, and suppliers. With employees, leaders should assign high-potential people key roles in the integration process, so they feel as if they are helping to build the new company. With customers and investors, leaders should arrange personal visits and talk frankly about their expectations from the new company. And with suppliers, who often have a lot of fear surrounding a merger, leaders should make an active effort to help them understand what is going to happen. Q: What should a leader hope to accomplish within the first 100 days of a deal post-close? A: First, it is important to use the first day of the integration to celebrate the beginning of a new era, as the two organizations symbolically become one. The next 99 days should be spent proving to stakeholders why the deal is going to add value. It is important for the leader to bring in some real results right away to show that the combined organization can accomplish things the two organizations could never have done separately. Third, the leader should get as many decisions done within those first 100 days as possible. This includes putting the right managers in place, creating new roles within the organization, setting time frames and deciding who will remain in what positions at the newly formed company. Last, and certainly just as integral to the first 100 days of integration, is for the leader to inform customers about how the merger will affect them in the short- and long-term, who their direct sales representatives are, and how the newly-formed company will continue to meet their needs. Q: To whom should leaders turn to improve their abilities to manage the integration period? A: The integration process is what we call a leadership development “hot house” – a huge opportunity to strengthen the capabilities of the organization at all levels. It gives leaders the opportunity to challenge people with stretch assignments they would never get in their ordinary jobs. In our view, senior leaders should turn to consultants to enhance their ability as coaches – i.e., to help leaders engage, challenge, and develop their people, but not to do the work for their people. Leaders should also encourage strong collaboration with the HR function as part of the integration process so they are also involved in leadership development and talent assessment. © Schaffer Consulting 2011

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