June 26, 2018

When it comes to transitions after a merger or acquisition, a well-developed, swift, and focused approach wins the race

By Barney Bernstein, Senior Associate

For those of us who have worked in agriculture awhile, if there’s one thing we have in common it’s experience going through a merger or acquisition. With so much consolidation taking place in the ag industry, it’s not a question of who’s going through a transition, but rather who isn’t. 

Whether it’s to grow or simply survive, the goal of any merger or acquisition is to blend the strengths of two organizations into one that brings greater value to shareholders. But first you have to achieve synergy, and that requires a concerted effort to integrate the two organizations into one well-oiled machine.

Studies upon studies show most mergers fail to bring shareholder value. How do you go into the venture optimistically when the odds are stacked against you? Mergers often fail because companies overestimate the synergies the consolidation will yield. What they often neglect to factor into the equation is the people component.

Focused and Steady Pace

Getting through the hurdles of boardrooms, legal teams, and regulatory agencies is an enormous feat; but the hard work really begins once the deal is signed. If getting the deal done is a relay race, then the integration that occurs afterwards is a marathon—and a perpetual one at that. Once the announcement is made, so begins a series of decisions that have a ripple effect through both organizations, everything from brands to IT structure, locations, benefits, 401(k) structure, what the new entity will be named…the list goes on.

When you’re blending two distinct sets of employees, customers, cultures, processes, and systems, it seems the finish line is never really in sight. Organizational changes of this magnitude cannot successfully come together overnight—we’re talking years of commitment to supporting the changes and synergies that will ensure you achieve the intended benefits of the consolidation.

Will the whole be greater than the sum of two parts, as promised? As the market awaits the results, there is much work to be done to ensure synergy is achieved. It's both art and science…with science being the numbers part and art being the people side. The numbers can look great on paper, but if you don’t master the people element those numbers may fail to materialize.

7 Keys to Integration Success

On paper, the terms of the deal may look like a match made in heaven, but you won’t know the real impact until you integrate the people (and the processes and systems, but none of that is possible without the people). A solid integration strategy is your best defense against the threat of destroying shareholder value in a merger or acquisition.

Here are seven guiding principles to keep in mind when creating an integration strategy:

1. Make decisions quickly and strategically, especially the tough ones. Be as concrete as you can, as quickly as you can while still being methodical in your decision-making process. When a consolidation of any kind is announced, people move immediately from feeling in control of their world to an overwhelming feeling of uncertainty. Everything is unknown in the beginning, and that is very unsettling. Will I have a job? What do I tell my customers? What does this mean for our product portfolio? Which brands will be retained and which will go away? Is my location going to close?

Of course, you won’t know all the details on day one; and if you don’t know the answers, it’s ok to say that—just explain your plan and timeframe for doing so. A high-level integration timeline can provide a roadmap and divide the overwhelming process into bite-sized chunks. Ignoring your peoples’ need for information will result in them filling the gap with rumor and innuendo, most of which is incorrect. This is a terrible spiral, further declining morale and may cause you to lose your best people to more stable environments.

2. Make allocation of people and physical assets a priority. The number one burden on employees’ minds is, “where will I fit in?” so the sooner you can share that information the better. Having the organizational structure out in the open gives everyone a greater sense of control over their situation and puts minds at ease. And, it clearly defines who’s playing what roles and where accountability lies.

As for how to go about creating the new organizational structure, the goal is operational efficiency, so you’ll need to evaluate all the roles required to keep business flowing smoothly. Resolve power and people issues swiftly to have a better chance of success. Behind the scenes, you might look at individual roles in terms of those who are critical, those who are specialists, and those who are contributors, and plan accordingly. Sometimes it’s smarter to look at whole teams rather than individual performers—keeping an entire team intact may be more seamless than forming a new team of individuals from both organizations who you perceive to be the best performers. But most importantly, you need team players who put the success of the organization first. Self-absorbed contributors who prioritize personal success over the organization’s can disrupt the integration process and erode the value you’re trying to build.

When it comes to determining your footprint and rationalizing your physical assets, it’s imperative to follow due diligence to critically analyze the market value of each location. Such decisions should have data to back them up, as they impact your employees, shareholders, and customers. Making decisions on a gut feel is a disservice to those stakeholders.

3. Communicate proactively and continuously. Maintain a steady rhythm of communication to keep people informed, because if there’s a lull in the flow of information employees will fill it with their own versions of the story—and that damage can be impossible to repair.

Overcommunicating is an excellent rule of thumb. Your strategy should include communication from the top-down, but also from the ground up with methods for letting employees have a voice—they feel heard, and you know what’s on their minds. It doesn’t hurt to repeat certain messages several times. In fact, reinforcing messages can provide comfort and much-needed consistency. 

Also important is equipping your mid-level managers with information and communication tools to keep their teams informed, as they are in the best position to make the news relevant and tailor it to the unique needs of their group.

But, going back to point $2 above, swift organizational transitions are critical, and overcommunication cannot bail out a slow integration process. Employees deserve to know their destiny as quickly as possible—quick definition provides organizational stability and allows you to focus on developing the desired culture quickly.

4. Be compassionate. Emotions are a powerful force—powerful enough to derail your progress if you’re not careful—so don’t ever underestimate the human response to change. Treat people respectfully: Employees will be distracted, stressed and anxious about their future—and you’ll be asking them to maintain a heavy workload (or often increase their workload). Cut them slack where you can. Recognize the emotional toll and acknowledge their hard work.

Transitions are hard. Finding ways to bring positivity to lighten the load can go a long way. For example, extra PTO or a relaxed dress code can be uncostly ways to lift spirits in a stressful situation. For those leaving the organization, offer assistance with career counseling, placement support, and having experts accessible to answer questions about severance benefits and what happens next.

Not only is treating people respectfully the right thing to do, but the way you treat people makes an impression on those you want to retain in the new organization. Customers notice too, which is important to keep in mind; they’re probably more loyal to their rep than they are to the organization.

5. Maintain customer focus. Organizations going through change tend to become very internally focused, often to the detriment of good customer service. Any period of transition is definitely NOT the time to let your attention to customers wane. You must be more deliberate than ever with customer service and find ways to keep everyone’s eyes on the customers.

It’s also wise to be upfront with your customers about changes they can expect while assuring them about your commitment to serving their needs. In exchange for your transparency they might even be willing to forgive any disruptions or delays in the service you provide.

And very importantly, make sure your employees know what to say to customers. Customers will ask questions, and when employees don’t know how to respond it’s uncomfortable for them and reflects badly on the company.

Keep in mind competitors are watching and waiting to take advantage of the situation. They know your eye is not 100% on the ball and they will use that to their advantage.

6. Align everything back to the business rationale. Don’t lose sight—and don’t let anyone else lose sight—of why you’re here in the first place. Focus relentlessly on the value drivers behind the deal, and make sure everyone is steering in that direction. Keep people busy on the things that matter most—the projects that take priority are those that satisfy customer needs and deliver results back to shareholders. Your employees will find tough changes are easier to swallow if they understand the reasons for the changes.

7. Set realistic performance and financial goals. While the goal of any merger or acquisition is improved efficiency, don’t expect to achieve maximum efficiency right out of the gate. There will be distractions and slow processes. Carefully manage expectations of senior-level management and shareholders about performance so they don’t expect too much, too soon.

It's a common scenario where acquiring companies push a sale through by making aggressive claims to shareholders, only to fall short because the goals were too ambitious. In fact, I don’t know if we’ve ever seen a major ag company hit their first-year numbers after going through a sizable merger or acquisition. You must take into account the disruptions that occur with transitions and how that will slow things down.

All that being said, you most certainly should have aggressive long-range goals; and as the new organization starts moving forward, make sure everyone inside the organization knows them and understands what they must contribute for the company to achieve them. Translate company goals into attainable performance metrics for individuals—everyone should understand what you want to accomplish and how they can help you do that.

One Step at a Time

Transitions throw everything into a state of chaos, but with a well-planned and executed integration plan you can emerge stronger on the other side—which is the whole idea. The most important takeaways? Taking care of your people will serve you well in the future. Synergy is the goal, and you can get there by finding the right pace and building steady momentum. Take time to analyze the scenarios in front of you, but be swift about it.

An integration is like a challenge course—with individual trials along the way with moving parts that mess up your footing or knock you off track. The key is to have a plan to master each challenge and keep moving forward. Companies that fare well in a post-merger environment do not leave their success to chance…they follow an approach to integration that’s systematic and disciplined.

If you’d like an unbiased perspective on your integration strategy, contact Barney Bernstein at bberstein@entira.net or 919.830.6527.