Successfully integrating mergers and acquisitions - Brief Article

Modern Brewery Age, May 13, 2002 by Pat Jones

The Wholesale Distribution sector is a highly fragmented market and fragmented markets tend to be prime candidates for mergers and acquisitions. Additionally, the competitive environment favors companies with critical mass and critical competencies to maintain competitive advantage. Mergers and acquisitions occur for a variety of reasons including:

* Creation of operating synergies resulting in lower costs

* Reduction in competition and improving market share and margin

* Improvement in service capabilities through achieved synergies

* Increase in leverage over suppliers through volume purchases

* nabling investments in selected technologies not possible before

* Enhancement to employee quality of life issues through improved benefit, training, streamlined operations and continuing education programs

* Reinvestment in infrastructure and organization resulting from achieved synergies

Mergers and acquisitions can significantly improve shareholder value if done successfully. However, it is important to note, that many of the acquired firms are sold soon after acquisition and an even higher percentage fail to meet managements expectations for the merger or acquisition. Some of the reasons for not meeting expectations are:

* Inability to reengineer the merged companies to achieve synergies

* Cultural issues that persist long after the integration of two companies

* Failure to implement the "right" organizational structure and obtain employees who may feel "left out" by the merger

* Inability to integrate different technologies

* Inordinate amounts of management time spent on the merger or acquisition resulting in poor tactical execution

* Failure to develop a clear and concise strategy for the merged companies

* Lack of focus on revenue enhancing and market share opportunities due to attention given cost reduction opportunities

* Insistence on doing things "my way" instead of seeking out "best practice" from both companies

* Rushing the planning and strategic phases of the merger resulting in poor execution

It is important for merged companies to realize synergies over a relatively short window. Markets are dynamically changing and timing is often critical to achieving expectations. A rapid change in market conditions requires rapid changes within an organization to respond. Companies in the process of integration may not see these changes occurring or may miss other opportunities because of the attention given to the merger itself.

Successful merger integration encompasses the major components of a corporate operation model which include people, process, strategy, technology, organization, customer service and performance management. More specifically, the keys to successful integration include:

STRATEGY & PERFORMANCE

* Identification of a clear mission and vision for the merged companies

* Articulation of key objectives for the merged companies over a 3-5 year time horizon

* Decomposition of the corporate strategy down through the departmental level for the merged organization

* Identification of key synergistic opportunities and development of realistic budgets with implementation objectives defined

* Development of performance measurement criteria set around the new organization

PEOPLE & ORGANIZATION

* Identification of personnel retention objectives

* Identification of key personnel and approach to key personnel communication

* Development of the new organization structures and assignment of key personnel to organizational positions

* Sensitivity to cultural issues and development of an approach to promote team work and resolution of issues before they erode morale

* Creation of communication channels to resolve employee conflict, coach for performance improvement, improve awareness and mentor employees for continued growth within the new organization

* Development of learning and feedbacks loops within the new organization which result in continuous improvement and promote success

INFORMATION TECHNOLOGY

* Creation of the Information Technology strategy with clearly defined objectives over a two year period

* Identification and development of an approach to integration which includes not only the hardware, software and communications requirements but the training and logistical requirements and inherent barriers associated with technological change

* Identification of key processes likely to be impacted by technological integration

* Documentation of a project plan identifying key requirements for successful implementation including resources needed

* Definition of the processes required to respond to user and organization issues arising from the integration

PROCESS AND CUSTOMER SERVICE

* Definition of the integrated customer service model

* Identification of synergistic opportunities resulting from the combination

* Creation of an integrated budget and identification of specific performance criteria

* Reengineering of key processes to provide the synergies expected

* Developing measures and incentives to support achievement of the desired synergies

* Testing and refinement of the integrated processes and customer service model