Nov 09, 2015

Applying Lessons for a Successful Acquisition

Ben Armenta
Emily Dunn

Ben Armenta and Emily Dunn

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Building a formidable organization during times of economic crisis has never been easy.  Operating in a commodity-based industry requires a heightened knack for “seasonal” preparedness to weather business cycles.  Depressed oil price conditions continue to put a stranglehold on producers and service providers alike, exposing many to corporate integration scenarios.

The proliferation of mergers and acquisitions (M&A) across the energy sector is an indication of opportunistic positioning for recovery.  During weakened economic circumstances, cash-positive companies seek to solidify their footing where they were once marginalized or at best, operated as “one of the many.”  Recently announced are the mergers between Schlumberger and Cameron, an approach to combine competencies to create the industry’s first complete drilling and production systems, and between Halliburton and Baker Hughes, a union that will make the new organization the largest oil field service provider in the world.  Both endeavors are strategic attempts to gain market share, expand product lines, and engage in cost reduction measures.

The acquisition of BG Group by Royal Dutch Shell this past spring is thought to be the kick-off to a M&A season like that seen in the late 1990s, a time marked by similar market conditions that began with the acquisition of Amoco by BP.  This initial merger indicates that there might be more M&A efforts on the horizon.

In our experience we’ve come across several critical success factors most often overlooked by corporate leaders during M&A endeavors.

  1. Build a New Corporate Culture

The acquirer in most integrations is typically in a position of organizational strength, capable of dictating terms around future-state organizational structure and culture.  The often-selected answer for “What do we do with our new combined culture?” is to worry about it at a later date.  Executives tend to focus on assimilation and compliance as driving forces around adoption, a short term approach that can undermine the value of an acquisition.  Daimler-Benz faced this scenario during its acquisition of Chrysler.  The intent was to create a trans-Atlantic automotive superpower through “a merger of equals.”  Friction between the two auto giants prevented Daimler-Benz from capitalizing on Chrysler’s North American market strength and alternately, Chrysler never achieved expected benefits from the high-end components produced by Daimler-Benz.  Operationally and organizationally, the schism was never fully addressed and Chrysler was offloaded to a private equity firm less than 10 years after the merger.

Instead, consider building a new corporate culture.  Although not a one-size-fits-all approach, thoughtful culture planning can bring great benefits.  The acquisition of RMC, a concrete products manufacturer by building solutions company CEMEX was initially met with strong cultural resistance.  RMC, a large British company operating within established markets, was taken over by what was perceived internally as an unsophisticated Mexico-based organization.  Uniquely, CEMEX started the merger process by addressing one of RMC’s current pain-points, a struggling plant.  CEMEX collaborated with RMC leaders to quickly make large infrastructure investments, used post-merger integration teams to train RMC employees, and invited top RMC performers to highly functioning CEMEX plants around the globe.  RMC leaders quickly became internal change champions. These measures ultimately led to process safety improvements and served as a culture-creation blueprint, which CEMEX applied in future acquisitions.

  1. Focus on Growth, Not Just Synergies

The natural tendency for most M&A leaders is to drive attention toward bottom-line cost reduction.  Commonly, acquirers pursue significant synergy savings through the shrinkage of costs and the elimination of redundancies.  However, sustainable value is driven in parallel from top-line growth strategies and moving value-capture activities up the priority list.

Growth initiatives such as securing and disseminating valuable IP, accessing untapped markets, and offering a broader portfolio of products and services to existing clients, can pay significant dividends for the newly integrated company.  Successful integrations prioritize these approaches, putting additional attention toward information management (both internally and externally) and placing high performing leaders in positions to make growth decisions.  This includes arming those leaders with operational and talent data from both legacy companies and by making that data accessible not on a monthly basis, but on a much more frequent cycle.

  1. Accelerate Integration via Dedicated Resources

Most executives who have weathered an acquisition say that the best approach is speed over perfection—sometimes you just need to “rip the bandage off.”  Trusting leaders to get the job done enables the organization to quickly digest the influx of people, processes, and technologies and reorganize them appropriately.  The challenge lies in identifying which leaders should be entrusted with such responsibility.  The truth is that not everyone is best suited to lead integration efforts.  Just because someone effectively manages a P&L does not make them ideal to tackle this critical work, and an undertaking of this magnitude cannot be a job “off the side of someone’s desk.”

Rather, the recipe for success involves short-term pain for long-term gain.  Dedicate individuals from operations and other key functions and then give them the mandate to accelerate the integration.  Ideally, proven executives committed fully to the effort are best positioned to liaise with internal business leaders, external customers, front-line team members and most importantly, each other.  Underestimating the complexity of integrations and only partially dedicating resources is one of the biggest mistakes companies make during mergers and acquisitions.

Take M&A Lessons to Heart

If your company is undertaking an acquisition, consider how well you are applying these valuable lessons.  Companies that embrace these approaches will increase their position for both near-term and long-term success.

About: Ben Armenta is a Principal and Houston Geo Lead for Credera.  Emily Dunn is a Management Consultant in Credera’s Dallas office.  Read more about being #futurefocused at Credera.

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