In the midst of an acquisition, attention is often focused on signing the deal and appeasing stakeholders, looking with optimism to what the new merger will mean for revenue and earnings growth. But after the ink dries, many new companies discover they did not account for the proper infrastructure, systems, and tools for the new business enterprise. The result is a lot of “broken glass”– missed opportunities, lost time, and extra costs. The following are lessons learned from one transaction that can provide insights into your post-deal planning.
Poised for greatness. At my former employer, we embarked on the largest acquisition in the company’s history – a deal that would more than double its IT services revenues, increase headcount by 2,000 technical employees, and establish a true North American footprint. Both companies were excited about the prospects of the combination. After the deal was inked, we rapidly put together steering committees and integration teams for all key functions and areas of the business. We mapped out roadshows to visit employees in the field and call on key customers. The numbers all made sense, and it was expected that it would be an accretive deal to Wall Street investors. Employees, customers, shareholders, and business partners were all excited about the prospects, and why not? We had an incredibly successful track record of acquiring companies, integrating them, and delivering results for shareholders.
However, despite these strengths and the solid plan for the acquisition, the actual integration and execution were a long and painful undertaking. It took nearly 18 months to complete, and we broke a lot of glass along the way.
Our company had grown up predominantly product-centric. We were transitioning to a solutions provider model, delivering an array of professional services to large national clients. As such, our systems and infrastructure were mainly built to support the product-centric company with some add-on type services. We always prided ourselves on watching costs and being the “low-cost provider” to our customers. Therefore, we were a bit naïve and inexperienced in thinking our current systems – with some modifications – could support the combined companies. While the final results were net successful, and many goals were achieved, there were many lessons learned along the way.
Evaluate current systems. When planning the acquisition, a better evaluation of the existing systems of both companies would have provided insights not only for the current transaction but for future acquisitions. Management would have been able to continue to aggressively scale the services business, and expand beyond the national footprint to international service delivery.
Plan for enhancements. At the time time we asked the board and banks to approve the transaction, the ERP/IT platform should have been addressed. We needed approval for a replacement, along with short-term upgrades to the current system, until a full-scale overhaul/implementation could be completed. Having this approval would have allowed for a smoother and more rapid transition to the national solutions provider model.
Consider passing. In hindsight, we could have explored the option to wait or pass on the great acquisition opportunity, make the systems conversion first, and then go hunting for an acquisition later, which would have been a lot less painful for all parties. While holding off may be a safer option in many situations, in this case, it would have been a difficult pill to swallow, as the shareholders wanted to see solid sales and earnings growth even in challenging times. Knowing how attractive the valuation would be made the decision to pass even more difficult.
Be flexible. Recognizing the need for new and improved systems after the integration began required us to create some temporary work-arounds and band-aid solutions along the way. We ultimately had to restate the financials for one period. While it was not the “textbook” way to integrate, the company did ultimately invest in the new systems and today continues to be a formidable player in the IT industry. The key was to be proactive, flexible, and creative, recognizing the mutual goals of our employees, customers, shareholders, and business partners.
Some degree of glitches and oversights are expected after any signed deal. Broad-scale integration and execution are complex and variable, and a seamless transition is only achieved through meticulous planning. A seasoned consultant can help companies minimize the “broken glass,” and ensure they have the proper infrastructure, systems, and tools for revenue, growth, and goals.
Steve Pomeroy is the founder of Big Change Advisors, a unique M&A consulting firm in Los Angeles that helps businesses achieve big goals while making a big impact on society. To request a free consultation, contact us.
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