One of the benefits of an economy like the one we are experiencing, is the opportunities it creates. For companies with strong balance sheets and lots of cash, this could mean the opportunity to buy a competitor, or create JV's to build market share and revenue.  But as with anything in business, there are risks, and the key to paying the right price and getting the right ROI is not a numbers game. Rather, it is driven completely by the people in the organization and the leadership that drives the strategy. In a study by KPMG1, 83% of mergers were unsuccessful in producing any business benefits in regards to shareholder value. 

As the VP of Growth for GE Consumer Finance, my team and I were acutely aware of how important a company’s culture, leadership and organization structure was to securing a successful deal. My role was to make sure we captured the synergies from a people perspective, outlining the cost of severance, benefits, pension liabilities, and CIC payouts, as well as assessing the leadership team and cultural fit with GE. Of course there was the financial due diligence that our finance team managed, but it was only one input into the equation.  GE had a very rigid 100 day integration plan that was well documented, and required the purchased company to migrate over to our systems and processes almost immediately.

As in the KPMG study, GE focused on three key areas pre deal to ensure long term success.
1. Synergy evaluation
2. Integration planning
3. Due diligence

CFO’s may overlook the top two areas because their focus is primarily on the balance sheet and the P&L's. But numbers don't make a company successful, the people and organization structure do. So what can you do to ensure you are getting the "right" price and your acquisition will be successful? Well, if you can follow these processes, you will be ahead of the game.
 
1. Perform an Organization Assessment on the organization synergies and structure. Is it optimal? How are they organized against benchmark? How will you re-organize them to reduce costs if they are above benchmark? The answers to these questions will equate to tens of millions of dollars, in most cases. We use a tool called an ODA (Organizational Diagnostic Assessment), that show us the spans of control, number of layers and other important organization metrics. We benchmark against a company’s peers and quantify the savings of building the optimal structure… which usually results in reducing headcount.
 
2.  Conduct a Liabilities Assessment on  the severance, benefits  and pension liabilities. Look 5, 10, 15 and 20 yrs out. What are the change in control payouts in the executive team contracts. Can you convert those to equity? Or renegotiate them? If a company has been doing poorly, then the leadership is to blame, and a CIC is almost a given. Re-negotiate them with equity if they stay. 
 
3. Perform a thorough Executive Talent Assessment. We use a process called a "Heat Chart" which is populated using the Keirsey Assessment test as well as a customized Competency Assessment Tool. However you perform an assessment, use the future strategy you have set for the company as the guide for what skills will be needed now and in the future.  Additionally, "style" will play a big part as you integrate this company into your culture. Are the CEO and leaders non communicators, but entering a culture of transparent communication? Or do they lack rigid performance management standards and are "easy" graders entering a culture of high performers?
 
4. Conduct a Risk Assessent to understand the status of the company. The numbers only tell you one story, but the Risk Assessment tells you the real story of how the business is operating. We use a tool that includes questions on Operations, Finance, Organization, Competitors and their Market. The answers to these questions delivers a Risk Index that can be used to identify where there may be problems hidden and allow for a mitigation plan to remedy any issues.
 
5. Run a survey to get VOC (Voice of Customer) feedback from the employees before, during and after the integration. We use a tool called a "Pulse Survey". It is NOT an engagement survey, rather this survey tests employee morale and sentiment.  Are the employees excited about the new venture, or scared for their jobs? Do they trust the leadership team or feel like they are not being told everything?  A simple, anonymous survey will give you the answers as to how the organization is feeling and allow you to put plans in place to ensure the deal doesn’t result in poor productivity from the employees.
 
6. Layout a 100 Day Integration Plan, and apply cadence to the process. Daily meetings to ensure the retained organization and processes are transitioning smoothly. Training is a big part of an integration, so don't cut that short. If you do, it will show up in the Pulse Survey above.
 
7. Execute the Due Diligence thoroughly, asking detailed questions, analyzing their market and their data, don't just focus on the numbers. There is a story behind those numbers, probe and find it out. Ask lots of questions about "how" or "why" and don't take non data driven answers. 
 
M&A is a great way to gain market share or gain a competency you dont have, but be careful. It's a tricky process and one that needs attention pre and post deal.  Use the processes above and you'll have a better chance of having a long term successful deal.
 
1. KPMG: UNLOCKING SHAREHOLDER VALUE: THE KEYS TO SUCCESS November, 1999
 
For more information on NexGen's M&A/Integration Practice, go to www.nexgenadvisors.com.