Integrating a newly acquired business is difficult at the best of times but fusing a foreign entity adds cultural complexity which needs to be addressed. People are the most important part of any M&A transaction and, in order to retain acquired talent after the ink on the deal has gone dry, it’s vital that senior managers move quickly to make them feel an essential part of the ongoing strategy.
Setting the tone of the integration in the first three or so months will be crucial. “Make sure you sit down with your newly acquired colleagues and give them absolute clarity about why you bought their business,” says Martin Sutherland, Managing Director of BAE Systems Detica, a division of the FTSE 100 aerospace company focusing on information and data security.
“You should share the management plan with them so that they own the acquisition case as much as you do… In those first 100 days you need to make clear why the acquisition was done, what the new mission statement is and what the expectations are of the acquired management. You then have to work with them to assess the best way of achieving that plan using all of their current approaches and processes.”
Communication doesn't necessarily need to be dictated by head office as managers on the ground should be well briefed enough to handle questions from employees, customers and suppliers. “The most common mistake is to leave the foreign entity to its own devices. Culture, practice and loyalty are not absorbed by osmosis and true integration will require a lot of hands-on involvement in both directions,” says Richard Harvey, Chairman of consumer products company PZ Cussons, and a former Group CEO of insurance concern Aviva.
“If possible, I would appoint an existing and trusted corporate executive to be the new local CEO in the country in question. If not, then at least one or more employees to be transferred in at director-level. The more exchange of executives both in working roles, and through management training courses and so on, the better.”
The acquirer must make sure they’re giving plenty of time to focus on the softer side of the deal. Richard Prosser, Chairman of car rental distribution provider CarTrawler, comments: “Many make the mistake of hauling people into head office, but if you really want to understand the nuances of the acquired business, get under the skin of it and relate to the people, you have to visit that country often and not just reside in the boardroom.
“For example, an Italian business that I bought was previously owned by the Catholic Church, which was quite a transition to being a UK-owned plc, and one of the most important things I did every year for ten years was to go to their annual staff party. It was set in a rustic restaurant in Parma and there were 60 people in the company, which meant that I could personally thank everyone for doing a great job.”
Cultural issues shouldn’t be underestimated. Howard Kerr, CEO at standards and training provider BSI and a former MD of World Gas Thailand and Chief Executive of Calor Group, says: “The biggest problem is when you have people in head office who just don’t understand [a different] way of doing business. When we bought businesses in Thailand and Taiwan, I was the guy in Asia, and I spent as much time arguing with my people in HQ as I did speaking with the target company in Asia, because they just didn’t appreciate the cultural sensitivities and didn’t have the personal experience of having done it themselves…
“In Asia, it’s about getting the trust and confidence of the individual and it takes time to make sure people really understand what you’re saying. Sometimes you’ve actually got to protect them from your head office to make sure you don’t lose the deal.”
Beyond the facade
Trust will only truly be created once the realities of the deal come to light. Not everything will have been covered in the due diligence and acquirers need to probe for any discrepancies.
Keith Butler-Wheelhouse, Non-executive Director at specialist plastics products manufacturer Plastics Capital, and a former Group CEO of multinational technology concern Smiths Group, explains: “Most businesses are sold professionally these days; there’s a prospectus and the numbers and market data are polished, and it omits anything that’s not great… As the buyer, you should be looking for the things in the business that, if you were buying it [without the help of advisors], you would consider to be the major risks. You need to test those questions with the management once they’re over the wall and ask them what they consider to be the biggest risks in the forecast over the next 12 months.
“The skill is in mitigating some of those risks and driving the path between the very optimistic way that something is always sold and the realism of what might go wrong. Then, during the integration, there won’t be any surprises. But unless you ask the right questions, you won’t get under the skin of it quickly or get the honesty you need from the management.”
The purpose of the deal has to be clearly defined on both sides if the two separate businesses are to be combined successfully. Aleen Gulvanessian, Partner at law firm Eversheds, says: “Our experience shows that acquisitions can succeed or fail as a consequence of good or bad integration planning. This should run alongside the acquisition contractual process with integration teams set up to ‘hit the ground running’ on deal completion.”
David Turner, CEO of French outsourced contact centre specialist Webhelp TSC, which acquired UK-based HEROtsc in February, comments: “It’s at board level where the deal is done and, to get our people onboard fast, the first thing we did was to bring the two management teams together at the senior level. We had a vision and knew at a high level what integration should look like but we didn’t have the detailed plan before going into the deal as we wanted the two teams to design and build the content.
“We’ve just had our first steering group meeting of that integration plan, which included myself and one of the owners of Webhelp, and appointed one person from each of the businesses to manage the project for us and lead a series of work streams to deliver the content behind it. Because of that, we’ve got two sets of management teams feeling as though they own the programme and that there is a process where their views get heard.”
Yetunde Hoffman, who recently stepped down as Global HR Director at Imperial Tobacco, where she was responsible for HR integration following the FTSE 100 tobacco firm’s acquisition of the Spanish-French joint-venture, Altadis, comments: “Town hall events and cultural integration workshops will help management understand the values of the acquired organisation and the values of the people that come with it. Having opportunities to share opinions about the integration is absolutely crucial because it impacts engagement and the ability of people to work effectively together.”
A similar point is made by Alison Esse, Co-founder and Director at change management consultancy The Storytellers: “What’s important is that you create a shared vision and then you start to shape your organisation, its rewards and processes around that vision, and look at the cultural side of the business as soon as possible."Plenty of transactions that looked great on paper have been ruined due to poorly thought out integration plans. Howard says: “An awful lot can go wrong in the first 100 days and if you lose the hearts and minds of the people who are joining you then, in my experience, it’s very difficult to get it back.”
The real work in M&A starts once the deal has been done.
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