Agency integration: Operational transition following a sale or merger

Rough Notes, May 2001 by Di Stefano, Paul J, Pepe, Thomas

Once the ink is dry, follow these practical steps to effect a smooth transition

With all the time and effort that goes into finding, negotiating, and closing an agency sale or merger, agency principals may overlook the integration and transition issues that must be addressed after the close of the transaction. Although detailed transition planning should take place before the transaction closes, too often the planning for integrating two agencies is left for after the close when implementation should begin.

Because we are frequently asked what issues must be addressed in the transition and integration process, we will outline some of the more critical items agency principals should consider in planning for an orderly transition and integration. Although this list is not all-- inclusive, it is a good starting point in identifying the issues that need to be anticipated. We will address these issues not just in a theoretical manner but also on the basis of our experience both as consultants and as former principals of selling or merging agencies.

In a broad sense, the transition and integration process has two key components: staffing and operations. Successful transition planning and implementation are based on recognition of the high degree of interdependence between these two critical factors.

Staffing

In establishing a purchase price for an agency, a key consideration is the economic synergies the combined organization is expected to achieve. During the negotiation process, the agency principals typically agree on staffing levels and space requirements. In the transition phase, staffing decisions must be implemented with due consideration to employee morale. Staff members who are to be terminated must be treated with concern, courtesy, and respect. Employees who are to remain should be reassured of their importance to the combined organization, and they also should be given a detailed explanation of any new or revised roles they will assume as a result of the combination.

Helping producers and support staffers adapt to a new culture and new operating styles can provide an opportunity for positive change. Many agencies find it difficult to implement changes with employees who have been with the agency for many years. Although resistance to change is normal, we typically find that in a merger or acquisition, resistance softens when changes are explained and introduced with sensitivity. In fact, changes may be welcomed because they eliminate perceived obstacles employees may have encountered in the past and give them an opportunity to expand their individual roles and demonstrate their talents to a new audience.

Operations

In combining two organizations, it is essential for principals to agree on how operations will be conducted after the sale or merger. For example, will marketing be centralized or decentralized? How will producers and administrative staff be compensated? Who will be responsible for collections: producers or support staff? Both operating efficiency and staff morale will be affected not only by the nature of these changes but also by the manner in which they are implemented.

"Nuts and bolts" issues

Within the broad areas of staff and operations, here is an outline of the tasks that can be considered the "nuts and bolts" of the transition and integration process.

Financial Controls

* Implement new travel and entertainment expense policies

* Implement expense reduction goals * Explain and implement revised accounting policies

* Upgrade and/or convert the agency management system

* Implement new budgeting procedures

Quality Control Standards

* Transition all files to conform with new standards

* Install reporting procedures for lost business

* Implement E&O reporting procedures

Producers

* Explain and implement revised commission schedules, including account size requirements

* Coordinate new business strategy and implementation, and implement related reporting procedures

* Manage the execution of standardized non-compete agreements

Administrative staff

* Explain and implement changes in roles and compensation

* Explain and implement new personnel policies

Managing the process

Clearly, the level of detail involved in the transition and integration process depends on the size and structure of the acquiring firm. When a large public broker or financial institution is the acquirer, its operating structure is likely to be highly delineated. Responsibility for implementing the transition, however, may rest largely with the staff of the agency being acquired. In this case, we see great value in appointing a key staff member of the acquired agency who will be accountable for managing implementation of the transition and integration plan. This approach offers a number of advantages. First, it establishes one point person to act as a liaison with the acquiring organization. Second, rather than having an unfamiliar face from the acquiring organization seem to be dictating new methods of operation, the producers and administrative staff of the acquired agency staff and key producers can move more comfortably through this sensitive period when they are learning new procedures from someone they know and trust.