Russ Banham

Russ Banham ( is a contributing writer to Chief Executive

Failing—to Win

How leaders turn fumbles into fodder for success.

Appraising Performance Appraisals

How the best companies assess employee performance—and what you can learn from them.

M&A Takeaways for Mid-Size Companies

Just because a company is smaller than an M&A-eating behemoth the size of Procter & Gamble doesn’t mean it can’t pick up a few morsels of wisdom from its experience. That’s the word from Mitchell L. Marks, professor of business at San Francisco State University, and an M&A consultant on the side. The same lessons apply, whether the deal steals headlines or not. “Many CEOs of midsize and smaller businesses deny or think they are immune to the perils of M&A difficulties,” says Marks, author of Joining Forces—Making One Plus One Equal Three in Mergers and Acquisitions. “They’re not, and in some cases there’s more to be concerned about.” He explains that small and midsize company “lack the luxury of a large corporation’s corporate staff and the ‘bench strength’ of up-and-coming, high-potential junior executives to manage the merger while keeping the business running.” In such cases, “the acquiring entity can be overwhelmed by the rigors and requirements of M&A integration,” Marks says. “Don’t delude yourself that doing the deal is the hardest part of a transaction. It isn’t. As one of my CEO clients said, buying a company is fun; integrating it is hell.” What’s the secret then in adding up two companies’ strengths and synergies and not ending up with a negative number? “A CEO of a midsize company needs to understand first the synergies and cost savings represented by the deal, and then not overpay for this value,” says Michael Burdi, portfolio consultant at corporate performance advisory firm Applied Finance Group. “If you pay a great price and have great synergies, you will likely succeed at adding value. If you pay a fair price and have great synergies you will likely get an average return. Valuation is the closest thing to the law of gravity that we have in finance. It is the primary determinant of longterm returns.” Practice makes perfect, Marks chimes in. “The best and smartest players in the M&A game have done multiple deals—they learn from their mistakes, and know what they can do on their own and what they need from external consultants,” he says. “The CEOs of large companies with great M&A track records also leave their egos at the door, knowing they can’t possibly bat 1,000 in this game, given the challenges of integration. That doesn’t stop them from trying, however.” Read: 4 Secrets of Great Deal Makers: Making the Most of M&Amp;A Deals.

M&A: Adding Up the Numbers

How does one define M&A success? Chief Executive reached out to two respected corporate performance consultancies—EVA Dimensions and Applied Finance Group—and put the question to them.

Making the Most of M&A Deals

What is it that separates winners from losers in M&A transactions? To get a grip on the answer, Chief Executive turned to some of the world’s top dealmakers.

Two for the Road

Are two heads better than one? When it comes to leading an organization, whether it’s a large, global enterprise or a small mom and pop shop, the answer seems to be yes. While some co-CEO arrangements enjoy the brief bliss of a Kardashian wedding, most stand the test of time.

Co-CEOs: Are Two Better than One?

The answer seems to be yes, two are better than one. Performance data for 30 companies that transitioned from a traditional single-CEO leadership to a co-CEO structure showed a positive reaction from the market.

Mergers and Acquisitions: A Deal Gone Wrong

For our November/December 2011 issue, former CEO and chairman of Procter & Gamble A.G. Lafley tells Chief Executive about an acquisition gone wrong.

You’re Married, Now What?

Key Takeaways

  • Set a tone of respect for the target, its legacy and people.
  • Identify, understand and overcome issues related to personal chemistry and cultural incompatibility.
  • Establish joint integration teams across business units, divisions and functions in advance of joining the business.
You’re Married, Now What?
Now that M&A activity is on the rise, the time seems right to re-examine an unnerving fact—roughly two-thirds of mergers and acquisitions fail insofar as creating stock market value. Moreover, a 2007 Hay Group/Sorbonne study found that more than 90 percent of mergers in Europe fall short of meeting financial goals. Why the abysmal success rate? “Most mergers fail because the strategy was flawed in the first place, the cost synergies weren’t there, the cultures clashed or the leaders of each company hated each other,” notes A.G. Lafley, who rode herd on more than a dozen major acquisitions during his tenure as CEO of Procter & Gamble (2000-2009). All too often, deal-makers get caught up in the traction that the deal will generate and neglect to give careful forethought to the look, feel and purpose of the combined entity and to overcoming the difficulties of integration. Adding to the challenge is the need for a thorough understanding of each company’s culture, intellectual capital, customer service, partner relationships, IT architecture, supply chain, back office functions and brand reputation. But while every merger or acquisition is to some degree unique, there are lessons to be drawn from past M&A transactions—both triumphs and failures. So we’ve examined a few good, bad and really ugly unions to ferret out four lessons for successful integration.

Lesson One: Prep for Post-Deal Integration

Successful mergers and acquisitions require planning the integration well before the ink is dry on the transaction—something acquirers often neglect. “The most important thing in a merger or acquisition is for both parties to write up a plan of integration ahead of signing the deal—and to stick to it,” says Michael P. Connors, CEO of Information Services Group, a large, publicly traded advisory services company that recently closed two acquisitions (Compass and STA Consulting). “This plan must be held accountable by the acquirer and acquiree.” Connors—who presided over 32 acquisitions in his long career, many as former CEO of what is today The Nielsen Company—also believes that acquiring companies often get so caught up in the promise of a merger or acquisitions that they fail to consider the post-merger governance obstacles. “Acquiring companies focus on the numbers; they give much less attention to who will run the show and how,” agrees Faisal Hoque, founder and CEO of Stamford, Conn.-based management solutions provider, BTM Corporation, and author of The Power of Convergence. “Few have a process for integrating the best people, technologies, processes and functions,” Hoque adds. “They don’t consider how the business process architecture will come together in terms of the supply chain, distribution and customer care.”

Lesson Two: Collaborative Connecting

J.P. Morgan Chase & Co. earned its investment when acquiring Banc One in 2004. The $58 billion deal made Chase the largest credit card issuer in the U.S. But trepidation suffused the target company upon news of the transaction. “I shared a wall with Jamie Dimon (CEO of Banc One at the time) and you could hear his bellowing voice,” recalls Katrina Pugh, president of Boston-based strategy consultancy Align, who was a first vice president at Banc One when the acquisition took place. “He had worked with Sandy Weill in forming Citigroup, and it was scary to think what lay ahead.”
“Acquiring companies focus on the numbers; they give much less attention to who will run the show and how.”
“Often in an acquisition, a climate of fear pervades the company being acquired, which increases the risk of the best people leaving,” says Pugh. “Jamie wanted to be sure this didn’t happen at Banc One.” Several post-merger integration teams composed of people from both banks were established to keep the anxiety at bay. Pugh was named head of the post-merger change management team within finance, involving people from both banks with the goal of sharing the best of each organization. “It was our job on the teams to send out the message that we would determine the best practices in each organization and then provide for a seamless transition,” says Pugh, who is the author of Sharing Hidden Know-How: How Managers Solve Thorny Problems With The Knowledge Jam. Teams jointly established the topics they would address. Pugh’s team, for example, tackled payroll as it might look going forward, given the differences within each bank’s functions from an operating standpoint. “The first thing we did was develop a mutual vocabulary as a baseline,” she explains. “Now that we were reading off the same page, we were able to review each other’s process maps to ferret out the best practices. Feelings of mutual trust developed, since we were in the trenches making the decisions. When the acquisition closed, the integration went smoothly.”
You’re Married, Now What?

Lesson Three: Leadership Accord—Or the Appearance Thereof

Post-deal leadership can be a thorny issue. Problems also often arise when the two CEOs are very different people. Success then hinges on the two leaders acting swiftly to resolve difference sand committing to presenting a unified front. The 1997 merger of Abitibi-Priceand Stone Consolidated, two Canadian pulp and paper companies, is a case in point. “One of the CEOs was a New Age visionary sort of guy and the other was a roll up the sleeves operational guy,” says Mitchell Marks, associate professor of management in the San Francisco State University’s College of Business and author of Joining Forces: Making One Plus One Equal Three in Mergers, Acquisition sand Alliances. Marks, who worked on the deal, notes. “They didn’t see eye to eye on much, which often happens in many mergers. But, they agreed to resolve all conflicts in private.” Marks was called upon to help bridge the divide. “They realized they had to model cooperative relations, even though they thought differently,” he recounts. “While they’d argue in private, in front of the integration teams they were all about agreement. They let it be known that one company would not dominate the other post-merger, and the best people from each organization would be identified during the pre-integration process. This reduced the risk of good people thinking their jobs were jeopardized hitting the road.” When the merger closed, the combined company, Abitibi Consolidated, enjoyed a stock value higher than most industry competitors.
“Often in an acquisition, a climate of fear pervades the company being acquired, which increases the risk of the best people leaving.”
When two CEOs get along famously,that accord streamlines integration. P&G’s Lafley cites his experience with CEO Jim Kilts during P&G’s $57 billion acquisition of Gillette in 2005. Both men believed their respective companies were more formidable combined than apart,and they broadcast this message in all appearances. “We beat our cost synergy goal by 50 percent because we integrated quickly and seamlessly,” Lafley says.Liam Brown and Colin Gounden,CEOs of market research providers Integreon and Grail Research, respectively enjoyed a similar bond. When Integreon reached out to acquire Grail in early 2009, the CEOs collaboratively laid the groundwork for the future of the combined entity. “Our chemistry was critical; fortunately, Liam and I share good chemistry,” says Gounden, chief marketing officer of Integreon,at present. “We owned up to the fact that there would be bumps in the road,but vowed that we would get over them together.” The effort paid off. Since the November 2009 acquisition, revenues from Grail Research, which kept its brand name, are up 35 percent.
You’re Married, Now What?
A lack of personal chemistry is not necessarily a death knell, notes Josh Leibner, president of organizational alignment consultancy Quantum Performance.“There will always be personality clashes,” Leibner asserts. “That’s not often the cause of break-ups. It’s the inability to create the right environment post-merger. You need to develop a vision and a direction, and get everyone to buy into it. CEOs of both organizations have to set a tone of brutal honesty, face reality without equivocation and make tough decisions immediately.”

Lesson Four: Consider Semi-Separation

Sometimes segregation rather than integration makes sense. “There are times when the best post-merger strategy is to leave the acquired company alone, particularly if you don’t know the business,” says Lafley. “We did that with a company called MD VIP, a start-up by an entrepreneurial doctor in Florida that provides family group care as a concierge service the family pays a set fee each year up front for health care guidance on nutrition, exercise and other ways of preventing disease. It was an innovative business model,a partnership between the patient and their doctors to create life-changing health care.” The target’s unique business model persuaded Lafley to run the company at arm’s length. “We put some P&G people on their board and provided some research and sales capabilities, but that was about it,” he explains. “We did not impose the P&G culture on them, which would have stifled the baby before it had time to grow. Last time I looked, its revenues were over $100 million, and we’ve made a significant return on our original investment.”

Six Avoidable M&A Mistakes

What not to do to make the most of your acquisition opportunities.
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