Cross Border Deals

Buyer's Remorse & Post Acquisition Drift

Commercial success associated with acquiring or merging several organisations can be very unpreditable.  Whether in the private or public sector any merger will experience key problems.

It’s not just that there are unusual problems with making systems and processes work across several organisations – its much deeper than that.  One would think the structural issues of agreeing management teams, strategic thrust etc would be easy but they are not.

What is the New Business Entity and what is its Vision?

The coming together of two organisations is the creation of a whole New Business Entity.  It’s not a process that evolves by default leading to full integration.  It is not a process that can be carefully mapped from Day 1, simply because the acquiring company does not fully understand what they have taken on until the deal is signed.

The company execs will have undertaken a form of ‘due diligence’ but they will have had access only to certain information in the data room.  There will be confidentiality agreements that will bind them and previous partners and suppliers, and much ambiguity.

Northern Rock

Much of what I say about M&A activity is also applicable to Northern Rock.  How can the Government manage NR back into the Private Sector?

Post Acquisition Failure Rates

Failure rates are high, as 56-80% of acquisitions never achieve the synergies for which they were originally created.  It’s not all down to structural issues either – systems and process have to work across the two businesses while they are building the new entity.

It’s amazing some time how long it takes to get the structure right.  Months after acquisition key people are still not in post and sometimes years go by and opportunities are lost because the new entity does not make staffing decisions fast enough.

Product lines, rationalized service provision, customer management, retention and satisfaction will cause problems and put the new entity at risk.  What happens if customer service levels decline and the consumer walks to a competitor?

Culture’s Consequences

Getting the Culture right is a key issue that most acquiring companies get wrong, yet it is the one thing that can bring the business together.  Forging strong culture, tying this in with monitored and measured business plans and metrics, together with a firm and robust post acquisition strategy staged from Day 1 – to Day 500 with defined deliverables with core people responsible is the answer.

The failure to do this will create a ‘cocktail of cultures’ where the efforts of both companies are diluted, energies wasted and high achievers leave for pastures new, leaving deadwood and negative grapevine culture behind.

The Answer – Start your Post Acquisition Plan Sooner

A climate and business practice of prevention and planning to build and shape the new Business entity are critical.  I have no doubt that the RBS new acquisition of ABN Amro is being as well planned and implemented as was achieved with the National Westminster acquisition.

I have no doubt that the General Electric empire will continue to acquire, sell and divest poor performers.  It is stated that not a day goes by without GE buying or divesting of a business.  Since the early days when Welch drove GE to become a leader or No. 1 or 2 in any industry, GE have perfected the M&A best practice.

Buyer’s Remorse & the M&A Challenge

The challenge is still bringing together two or more business to create a larger more successful entity that can function well in the future for shareholders, customers and staff alike.

The alternative is ‘Buyer’s remorse’ where Equity Groups, Acquirers and shareholders shake their heads in disbelief at the decision to merge interests.

2008 Challenges

M&A activity is declining, and it will be interesting to see how Jaguar Cars and Land Rover fare as Ford Motor Company appear to be near to selling these interests to Tata, the huge Indian conglomerate.

It’s the first time a huge automotive group has sold their interests to an operation based mostly in the Indian subcontinent – so it’s a matter of cultural change from a European perspective, to a cross border deal with a hugely expanding Economy.

Northern Rock

• How can the Government manage the culture at Northern Rock when they have changed its legal status?
• How can the Governmnet manage the expectations of angry shareholders and deal with the demands of customers?
• How will NR deal with the unfair competition tag coming from their competitors
• Will NR still operate at 125% of Mortgages or will they conform to the typical 90-95% Mortgage that are offered by competitors
• Who will pay for due diligence from the orginal 10 interested parties - rumour has it the Treasury has agreed to this?
• Who will fund the future sale of NR and what return will taxpayers enjoy

This and other fiasco's are proving to be interesting organisational dilemmas that have to be managed..