Last month, we hosted a diverse group of private equity, healthcare, manufacturing, banking and professional services executives for our second annual mergers & acquisitions summit. What we learned is that some things never change (integration is complex and messy) and that some threats (security and culture) are becoming critical due to changing conditions and workforce dynamics. In this article, we review some of the common hurdles faced by attendees as well as their lessons learned.
Security: Is there a silver lining?
Companies that are still worried about Microsoft vulnerabilities are treating last year’s viruses. Instead, companies need to be proactive and forward-thinking when it comes to safeguarding computers, data and networks from penetration. Pick up any newspaper and the headlines speak for themselves – security breaches are becoming commonplace and are ruining reputations and bottom lines. One audience member asked whether there is any good news when it comes to protecting yourself from risk (without going back to the days of all paper records and faxes). The answer is yes. People have become desensitized to security. If a company takes the same rigorous approach to security diligence as it does to financial, operational and IT diligence, it can protect itself against multi-million dollar fines and preventable breaches. If you are considering an acquisition and have limited access to the target company, consider adding a few security related questions to your diligence:
- Do you have a designated security officer?
- When is the last time you performed a vulnerability assessment?
- What mechanisms are in place to safeguard data?
Culture and change management are becoming increasingly critical to success
It’s easy to sweep culture under the rug and consider it too “soft and fuzzy” for concern during diligence and integration. Many companies find it hard to put concrete metrics and plans around culture. Generational changes continue to change the way companies recruit, retain and operate – and that’s forcing companies to rethink their priorities in order to avoid costly turnover.
We heard from attendees loud and clear – they need tools to assess culture and metrics to report to leadership to show progress. We dug deeper to go beyond traditional organizational strategy concepts of “spans” and “layers” and shared practical tools for aligning culture and managing change. Attendees agreed they need to start analyzing cultural differences earlier in the process – during target identification and diligence – but struggle to understand how to get under the covers while still in the early phases of a transaction.
Key strategies include:
- Meet with key leaders of both the acquiring company and the target company prior to closing. Discuss their management styles, reward and recognition processes and corporate norms.
- Assign a cultural integration/change management leader to manage the effort post-close – and make sure this individual isn’t also in charge of another workstream (e.g., HR) to ensure adequate time to focus.
- Look at the data to confirm (or deny) claims made about culture. For example, if a company claims it is focused on training and development but spends minimal dollars on it, you may not have an accurate picture of the target’s culture. Also consider researching social media channels like Glassdoor – but remember to remove the outliers on both the positive and negative ends of the spectrum.
Don’t forget the customer
A growing percentage of transactions are driven by the desire to grow a company’s customer base. But, in the frenzy of bringing two firms together, customers take a backseat to other integration priorities. Reacting to problems when customers start to leave is too late – the damage is already done. Many attendees struggled to understand the best way to approach customer diligence and retention.
It starts by getting the customer’s voice at the table. Make sure someone on the integration team is a strong advocate for the customer’s perspective. Some firms even make customer experience an explicit work stream. Interview customers through the process to understand their priorities and concerns (use a third party if confidentiality is key). Benchmark and track client satisfaction and/or net promoter scores through customer surveys.
During integration, avoid focusing solely on cost synergies at the expense of degrading customer experiences that will undermine revenue objectives. Whatever the changes, make sure communications to customers are clear, regular and transparent. You can never over communicate change to customers.
IT remains one of the most complex and costly aspects of a transaction
IT is a complex balancing act. It’s important to understand your goals, whether they are just keeping the lights on or implementing technology designed for maximum scalability and growth. During the planning process, we asked attendees a few key questions:
- Is technology a differentiator for you?
- What synergies might integrated or new technology help you achieve?
- What missteps from prior transactions do you want to avoid this time?
If technology is a key differentiator or source of synergy, dedicate the resources needed to make it happen. This includes both IT leaders as well as business leaders. Attendees commented that barriers between the business and IT have wreaked havoc on budgets and timelines for IT integration. Make sure your IT leaders understand the business needs and work collaboratively to deploy the right solutions.
Advanced analytics or back to the basics?
Predictive analytics can be a powerful tool during a merger or acquisition. But for many attendees, getting quality data is still a struggle. Consolidating data across companies and systems is a massive undertaking. Attendees asked how they can leverage analytics if they can’t even get a handle on all of their data?
We spent a lot of time discussing “big data.” There are so many types of data, how do you decide what data to focus on and what to do with it once (or if) you finally get your arms around it?
Analytics is a spectrum. During diligence, inquire about systems, reporting tools and needs, and data sources so you have a sense of the inventory. During integration, it’s okay to start small by removing Excel nightmares and scrubbing data but put a plan in place to get to where you want to be. Consolidated reporting (a single source of truth) is critical to sustainable growth.
This year’s summit covered a variety of subjects but the one recurring theme was that no one has ever gotten a transaction perfectly right. Attendees continue to see the value of learning from others, particularly across industries, to make future transactions easier, quicker and less costly. We continue to be impressed by the innovations and ideas implemented by attendees – and look forward to hearing how they implement lessons learned during the summit in future transactions!