Sometimes the best lessons in life are the ones we learn from others. This allows us to share in their knowledge without the pain and frustration of going through what they experienced. This is especially true in the M&A arena.
I recently came across a well written, post-merger essay written by a fellow who took the leap and acquired one of his competitors in order to grow his business. Written by Ian Fergusson and aptly entitled, “Lessons Learned During a Merger,” Mr. Fergusson is quite open with his experience in making a very timely acquisition. And in the end, even though it turns out that the move was a success, it was not without some hiccups along the way.
Here was his biggest miscue, according to Fergusson:
In hindsight, I think the biggest mistake I made was to agree to keep this sale completely confidential until the deal was confirmed and I had officially taken over. This meant the first time I met any of the employees they were already on my payroll. There had been no opportunity to meet existing employees, interview the office staff, or gain any insight into systems and processes prior to the day of the merger.
The issue of confidentiality and the best time to inform your staff is a real challenge we face with every transaction. In some cases, our deal teams counsel that as early as you can, you need to bring your key players on board, as well as the acquired team’s vital folks, before the transaction takes place if possible. However, in other circumstances, it may be better to wait until the transaction closes to inform staffs of either firm.
The key, of course, is flexibility and an understanding of the dynamics of your team and the group you are acquiring. In Mr. Fergusson’s case, clearly it would have been better to at least inform key employees of both groups in advance to smooth the transition. Some deal makers will actually encourage both seller and buyer to set up transition teams well in advance of the deal closing. These groups are usually comprised of vital, trusted employees who are empowered to begin exploring key conversion items before the deal closes so that they can be addressed in advance and not “surprise” the management team post-acquisition.
One factor to keep in mind if you are planning an acquisition event is this: Every company’s culture is unique. This is especially true of privately held businesses, many of which take on the personality, image, and make-up of the founding entrepreneur. In order to better enable a merger event, you need to take stock of this and make sure that the culture you are acquiring meshes with yours.
For example, if your business is highly formalized, consisting of extensive policies, procedures, manuals and documentation on how work is supposed to be conducted, any company you acquire will need to be similar, otherwise, you may have a painful transition as you help your newly acquired employees understand that now things are being documented as never before.
The opposite scenario is true as well: If your business is less formalized, if you give employees tremendous latitude in their daily operations, acquiring a more formalized operating business could be a challenge.
Neither system is better than the other, what works is what works for you; however, you have to be cognizant of the fact, pre-acquisition, that your company’s culture could be radically different than the target’s you are acquiring (and vice versa, the environment you are selling could be different than the one acquiring). Mr. Fergusson learned this lesson the hard way and survived; however, clearly if a transition team had been created in advance, the painful transformation to the new company could have been ameliorated a bit.
Of course there is no such thing as a “perfect” post-transaction merger. Let’s face it: Companies are comprised of people, all imperfect, and because of this human factor, even perfect preparation and planning can go askew. However, you can learn from the Fergussons of the world and realize that your post-transaction success can be dramatically impacted by when and how much you divulge to your crucial employees on both sides of the acquisition table. And, the concern about telling employees in advance of the closing could be further mitigated if current ownership would be remaining on after the sale.
The great news is that Generational Equity and its deal teams have collectively seen just about every post-transaction challenge out there. We can’t guarantee post-closing success – too much is out of our control once the deal is done. However, we can help our clients see and plan for hurdles that may arise. This is an important benefit of hiring us. We simply have seen it all via our hundreds and hundreds of closed deals. Here are some fundamental insights from our clients:
Bottom line: Don’t trust your post-merger victory to chance. If you are planning to exit or acquire (or both) within the next 3-5 years, you need to reach out to us. Generational Equity has the M&A experience, knowledge, and insight to greatly add to your post-transaction success.
Carl Doerksen is the Director of Corporate Development at Generational Equity, part of the Generational Group.
© 2016 Generational Equity, LLC. All Rights Reserved.
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.Jay Dinnison, Owner of Sharpe Mixers
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.Michael J Polarek, President, Paragon Packaging
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.Michael J Polarek, President, Paragon Packaging
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.Pete L.
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.Karen S. Williams, CFO, BW Manufacturing
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!Andy Graham, Vice President, Modern Heating & Plumbing
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
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