the role of *people* in an acquisition

June 12, 2008 at 10:48 am | Posted in Business, Professional Development | 7 Comments

Mike made the following comment on my post about technical challenges to organic growth:

I think some folks are concerned about acquisitions because, when they sometimes fail, they draw so much negative attention to the company that it makes a bad impression on the whole process. A good CEO and management team can successfully integrate a piece of technology without toppling the whole house of cards.

I agree, and  Mike’s comment about “toppling the house of cards” got me started on a bit of a tangent thought.  The longer I’m in business, the more I realize how much of it is about PEOPLE.

First, there are the people who did the acquisition. No matter how much diligence you do, no matter how thorough the integration plan, some will simply not work as intended. Then what?  Will finger-pointing ensue? Will terminations be demanded? Will that consensus that was built fall by the wayside? That, to me, will test the metal of the company and the character of the its leaders.  Will folks be sacrificed as the scapegoat?  Will they be beaten (psychologically) into a shell?  Or will they be encouraged to learn, grow, and do better the next time?

Second, there are the people being acquired. I think the most common weakness in diligence processes is the assessment of personalities of the target company and the integration plan for them, as PEOPLE, into the new company.  It is a very difficult thing to manage, especially when you’re so focused on the pure “spreadsheet” aspect of the deal.  It can make or break a deal resulting in an awful lot of money being made or lost, so it’s worth the extra effort.

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  1. Those are good observations. A good management team will treat people with fairness and provide open communication throughout the merger process. Management should also consider who is the best person for a job, regardless of which company they originally worked for. Also, the staff of the company acquired needs to be positive and open to the acquistion….their staunch resistance can undermine the merger more than anyone else.

  2. I think Mike’s comment about being positive and open to the acquisition is a tough ask in reality – being acquired is a scary scary experience, fraught with uncertainty and paranoia. Billy – as you know I came to Quest through an acquisition (and of course I happen to think that Quest gained not only great technology, but also great people through that acquisition – I can say that, because I am so objective:)). Anyway, since then I have thought a lot about how people can make or break and acquisition, and have seen both in action. Only one person from our acquisition didn’t make it through and that was because she wasn’t prepared to ‘take a step backwards’ in order to advance. She pretty much had a list of demands to be met. The red flags were waving loud and clear about her, but what if the red flags are a bit less obvious? Should acquiring companies engage in tests of some sort – is that even legal?

  3. I think the red flags are usually obvious. It just takes a willingness to want to see them. Sometimes I get caught up in a Utopian vision and don’t want to see the red flags. That, combined with focusing too much on the numbers alone, are probably the biggest problems.

  4. I don’t think it is any one thing that makes an acquisition fail. Assessing the need, quality, importance and cultural fit of the assets (people) being acquired is a must. However, putting too much focus on the people is like going to the gym and working your biceps everyday – your arms get big, but everything else stays the same (you may even start getting a gut). Let’s take a couple of steps back…

    One of the most often overlooked, though seemingly obvious, elements of an effective an M&A program is ensuring that every deal supports the corporate strategy. Many companies, believe that they are following an M&A strategy even if their deals are only generally related to their strategic direction and the connections are neither specific nor quantifiable.

    Instead, those who advocate a deal should explicitly show, through a few targeted M&A themes, how it advances the growth strategy. A specific deal should, for example, be linked to strategic goals, such as building shareholder value through increased market share and the company’s ability to build a leading position. Bolder, clearer goals encourage companies to be truly proactive in sourcing deals and help to establish the scale, urgency, and valuation approach for growth platforms that require a number of them. Executives should also ask themselves if they have enough people developing and evaluating the deal pipeline, which might include small companies to be assembled into a single business, carve-outs, and more obvious targets, such as large public companies actively shopping for buyers.

    Furthermore, many deals underperform because executives take a one-size-fits-all approach to them. For example, by using the same process to integrate acquisitions for back-office cost synergies and acquisitions for sales force synergies. Certain deals, particularly those focused on raising revenues, improving margins or building new capabilities, require fundamentally different approaches to sourcing, valuation, due diligence, and integration. It is critical for managers not only to understand what types of deals they seek for shorter-term cost synergies or longer-term top-line growth, but also to assess candidly which types of deals they *really* know how to execute and whether a particular transaction goes against a company’s traditional norms or experience.

    There’s something to chew on…

  5. Not sure what happened to the spelling of my name.

  6. Interesting feedback from Mr. Higdo. 😉 One comment in particular, does strike me as very interesting. Shayne says: “One of the most often overlooked, though seemingly obvious, elements of an effective an M&A program is ensuring that every deal supports the corporate strategy.”

    It’s actually amazing how many things start with “though seemingly obvious…” That’s why it’s so important (I think) to work as a team when it comes to something as multi-faceted as an acquisition. Else you can easily trip over the things that should be the most basic.

  7. […] at 12:02 am | In Business, Professional Development | Tags: Business, personal development A recent comment on one of my posts got me thinking about an old lesson I learned many years […]

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