Studies published in Business Week show that 62% of mergers and acquisitions fail to achieve the negotiated revenue, market share and profit increases.
These failures are significantly due to poor planning and integration activities, rather than negotiating the price or terms of the deal.
The fact is that it is easier to make a deal than to make a deal work.
We’ve all read about the litany of woes with poorly handled ones: financial setbacks, frustration, confusion, resistance and poor morale. But it is possible to beat the odds. While a period of uncertainty is normal, an organized and well thought out transition ends with customers, employees and owners who are optimistic, engaged and excited to build a highly profitable future.
Let’s say you are an owner of a business that’s sold, and the deal has closed. What should you do to prepare for this day?
The seller now enters into a multi-year transition phase. It details additional compensation if the business achieves targets for financial growth, a description of the executive’s role and strict restrictions on competitive activities.
The owners who fare the best have also prepared themselves psychologically for the next phase of their life. What will you do after the sale and earn out period? Are you ready to lose control of the business? Are you and your family prepared for sudden wealth?
Besides getting in the right mindset, what should an owner handle before the sale becomes public?
Remember that what gives a business value is the expectation of future earnings. The only way to achieve that is through people – especially those who would be difficult to replace. It’s human nature to be nervous when control changes hands and you don’t want key people to be open to other offers of employment.
Retention or “stay bonuses” are one management tool to keep employees who are critical to success. For key leaders, some form of equity is often used as a positive reinforcement to keep them in place and fully engaged going forward. These arrangements should be negotiated before the deal closes and can come from either side of the table - or both.
Now the former and new owners, senior leaders and key people are on the same page – what next?
It’s time to announce.
The message should be clear and simple:
1) what is happening
2) why it’s happening
3) how we’ll proceed.
Key points of the communication should include the vision, benefits of the new entity along with comments about the cultures and core values that will guide the next phase.
New ventures are always exciting. But there is one thing that owners and senior leaders consistently underestimate. You are coming out of due diligence hell and deal fatigue, but in many ways your work is just starting.
Uncertainty brings anxiety, and you will be handling people-problems galore when you have the least amount of energy to do so. You’ll need patience and fortitude to weather through the next period of transition as you are bombarded with the hopes and fears of customers, suppliers, trade, press, employees and family members. Gear up.
Does it sounds like the real work of integration starts right after the announcement?
That is the No.1 mistake of all deals!
Integrating business entities with different processes, goals and unique cultures is difficult and the stakes are high. Once “deal fever” sets in, people become attached to getting it done rather than making it work afterwards.
Top executives are relieved about closing the deal and just don’t have the energy or focus for the most critical element – achieving the revenue and profit targets used to negotiate the terms of the deal. So transition plans must be prepared before the deal closes – afterwards is too late as you risk losing the momentum that you need to drive change.
The No.2 most common mistake is that the focus becomes so inward that customers become an annoyance. When this happens the door gets opened for competitors who will take advantage of the situation.
No.3 on the list is that changes are decided on at the executive level with little or no input from those at lower levels. This is a recipe for disaster as people will not support needed changes if they are not engaged and involved.
And No.4 isn’t a common mistake but a deadly sin called “magical thinking.” Some sellers are naive – they think that someone is going to give them big bags of money, and things will somehow remain the same. You are no longer in control. You do not own the business. You have been well paid.
Everything is about to change - get behind it.
What is the basic framework of an integration plan?
People need a structured and time-bound plan with clarity around goals, responsibilities and expectations. Without one there is typically a high level of chaos, and people become dysfunctional and frustrated.
Each integration plan is unique depending on the nature of the deal and the objectives of the buyer. While one size does not fit all - the cake gets baked in 90 days. Effective plans set goals for 30/60/90 day increments and address people, processes and products. You do not want a protracted “work in process.”
Also remember, the buyer is looking to create value and start recouping their investment as quickly as possible. So there is intense pressure to perform.
Is it different with a private equity group vs. another produce or food business?
Very different. It’s not the intention of a PEG to own a business forever. After a period of time, many will need to cash in and show investors profits. This can happen with an IPO, a strategic sale to a competing company or even to another private equity company. PEGs have seen many businesses and are able to execute different approaches to growth. So their efforts are less “integration” than initiatives that drive short and long-term profitability.
An acquisition by another food or produce business involves a more classic integration. Approaches range from allowing complete autonomy - to combining certain pieces of the business model - to a complete takeover.
As we all know, the secret sauce here is the culture. And while books have been written about culture match or clash, people can sometimes force a deal to fit in the face of extraordinary wealth, ignoring big differences in corporate culture. When this occurs, the integration can still work, but it is a very arduous process.
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In 2017, Julie Krivanek of Krivanek Consulting Inc. in Denver and Steve Grinstead of The Grinstead Group in Dallas partnered to help owners looking to sell their businesses. This is part four of four in a series of stories for produce businesses and their business partners, written by Krivanek and Grinstead.
