fueling the success of acquisitions

Fueling the Success of Acquisitions

5 Hidden Causes for Failure11 Remedies for Increasing Success Rate

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* or, If we already know that they go wrong so frequently,

then why does it still happen?

Intent

The Perspective? Deep experience in organization behavior & performance psychology, assessing and changing leader, employee, and team behavior and performance; generating gains in organic and inorganic growth; complimenting the financial, legal, and technical expertise of leaders to develop and implement new strategies and initiatives, improve innovation, solve performance problems, and integrate businesses.

The Goal? To help you see and mitigate hidden organization behavior-based risks to the success of your acquisitions, and as a result help you increase success rate, accelerate growth and generate sustained returns.

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Why You? You have a vested interest in increasing the success of your transactions: • To grow the bottom-line and enhance the value of your company (or those in

your portfolio) and generate increased returns for shareholders, or• As transaction advisor, to satisfy your customers and create a

significant competitive advantage for your firm.

The financial targets of the acquisition are achieved as fast as possible to build cash flow (and minimize burn rate) and profit.

Added shareholder value is created in the combined enterprise.

Productivity is maintained during the transition and shows sustained

increase over time.

Employees and customers remain engaged to the company.

What is a Successful Acquisition?

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Low rate of acquisition success.

The causes for acquisition failures, and how to fix them.

What is the Problem?

If many published reports exist about:

It is Financial Suicide to ignore human capital - employees, customers, suppliers - and fail to bridge culture gaps

and, Leadership teams and their advisors know:

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Then why do transactions continue to fail or underperform?

“The definition of insanity is doing the same thing over and over again and expecting different results.” Albert Einstein

“At some point in the life cycle of virtually every organization, its ability to succeed in spite of itself runs out.” Brien’s First Law

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5 Underlying Causes of Unsuccessful Transactions

#1 Limited view of the Transaction Life-cycle

Identify TargetFinancial, Legal, Technical Due

Diligence

Create Plan for Integration

Implement Plan

Deal Close

Focus is on getting the deal closed rather than making the marriage successful.

Financial, Legal, & Technical perspectives dominate. Advisors (internal or external) measured on his/her own perspective and responsibility for closing the deal.

Integration-related activities begin only after deal close.

Management Team and Advisors often rewarded for Deal Close rather than Deal Success.

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#2 Thinking Traps

“This target is perfect; this deal is a slam dunk.”“We need this.” Just get it done. Now.”“We’ve succeeded in the past; if we follow the same formula, will succeed again in the future.”“This company was my baby. I know we must let go, but…”“We’ll take care of the culture stuff later. The finance and legal stuff needed to close the deal.”“It was their fault that last transaction didn’t work. We don’t need to do anything different.”“The right governance structure will solve everything.”

The way Management Teams perceive, think, discuss and decide about a transaction creates risk and limits the potential of the acquisition.

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Perceptions: Own interests, silos argued & protected.Discussions: Strong voice wins. Voices of dissent or alternatives quieted. Fear-driven

(‘don’t lose opportunity for promotion, bonus, etc’). Superficial.

Decisions: Fast. Driven by quick and easy solutions.Dysfunctional Thoughts:

No one wants to marry a loser; in our minds s/he is a princess or prince. Until s/he becomes the frog. In which case it is typically too late.


#3 A Mechanistic Transaction Process

Focusing on the “What” versus the “How” of the process.(‘Check-in-the-Box’, project management mentality)

Driven by financial, legal, technical expertise with a fixed perception on acquisition risks related to those points of view.

…and blind to the risks that impact employee performance and sustainable profit generation.

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#4 Poor Health and Low Capability of the Acquiring Company

Acquire because of their inability to create organic growth (within the existing limits of their market).

Have fundamental challenges implementing any major initiative or change.

Are unable to deal with complexity.

Many companies…

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Adding a new floor to an already shaky foundation … It might become the tallest building in the area for a while but at the expense of stability and longevity.


#5 Treating employees are Passive Bystanders

The acquisition typically happens to managers or employees (on either side of the transaction).

Very few employees involved in the process.

Employees hide their Knowledge and Expertise to maintain their own security & value in the company.

Formal communication often a superficial sedative to calm employees.

As the transaction and integration draw out over time, rumors gain power.

ImpactSkepticism, fear, anxiety, conflict, disengagement (sit and wait for ‘the’ package) diminished quality & productivity, employee attrition, customer attrition

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Eliminating the Underlying Causes & Mitigate Risk

11 Interconnected Remedies

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Remedy 1: Extend the view of the transaction Life-cycle

Due Diligence & Integration Forecast

Integration Plan Implementation

Learn, Adjust, & Sustain

Go / No Go Decision Deal Close

• Quicker achievement of Performance Targets• Greater buy-in and trust amongst leadership• Improved Employee & Customer Engagement (Retention)• Sustained business success of combined enterprise

Impact

Integration Planning

Pre-Acquisition Alignment &

Planning

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Assess & mitigate leadership and organization risks of acquiring company, early in each transaction. Engage leadership teams early.

Include behavioral risks in due diligence and integration forecast.Plan integration before deal close.Focus on successful marriage rather than only deal close.

Remedy 2: Identify & manage the key variables (the missing links) driving the transaction process

Emotional

Separation AnxietySecurity & ValueFear of Unknown

Trust

Rational

BiasesThinking FlawsMental Models

Groupthink

Structural

ClarityAlignment

Integration (across teams & units)

It’s not simply about “Culture” per se.13

Remedy 3: Complement traditional perspectives with emphasis on Organization Behavior

Financial Technical

Legal Behavioral

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And make hidden risks visible.

The Fundamental Risk: What is the company’s capability to collectively and coherently think about, discuss, understand, solve problems, plan, and implement a transaction?

If low, then odds of a failed transaction greater.

Risk Mitigation Tool: Structured Visual Thinking™ process

Improve the quality of the thinking; create shared meaning and commitment.

Remedy 4: Expand risk perspective to Behavioral Constraints

What are the behaviors limiting…1) Planning and implementing an acquisition 2) Business performance, pre- and post-acquisition3) Organization change

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Remedy 5: Ensure the top team and managers challenge all their assumptions

…Flawed Assumptions invariably lead to flawed decisions which invariably lead to flawed behaviors and to flawed outcomes…no matter how well accepted they are.

And unsurfaced, unchallenged assumptions reinforced by past success create unbounded optimism and illusions of superiority and control. The ‘Disease of Victory.’

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An elephantis like abrush

An elephantis like a

tree trunk

An elephantis like a

rope

An elephantis soft and

mushyAn elephant

is like asnake

CEO

Field Operations,

or Customers,

orSuppliers

Sales / Marketing

Finance

Operations /Manufacturing

And create a clearer, shared view of strategic fit, risks, integration needs; of new strategy and operating model…that all can commit to.

Remedy 6: Break the silos and build the Return on Relationships

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Remedy 7: Stimulate Inclusion of Employees

*Buy-in without Investment breeds passivity, helplessness, disengagement.Investment without Buy-in breeds ambivalence, misalignment, waste, cynicism…and disengagement.With poor or no Right Structures, neither buy-in nor Investment will be sustained.And in any case, success of acquisition at profound risk.

Influence employee Buy-in to the transaction.

Embed the Right Structures to draw out and sustain both.(I.e. communication & engagement, collaborative processes, technology etc.)

Seek employee Investment in the transaction.

and*

Investment currency: Knowledge and Expertise

and*

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Remedy 8: Discover how profit is in reality created & sustained by the company

And the weakest link in the combined company.

Identify the weakest link in each of the separate companies.

Manage the weakest link and the flow across all connections.

Identify the variables driving performance.

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Remedy 9: Create Structural Alignment and process for performance improvement

Current Reality“What are we actually getting?”

Performance - Performance Gap

Vision & Aspirations; Goals & Objectives

“What do we want?”

Strategy & Tactics“How will we act to

get there?”

Correction“What do we do

to close the gap?”

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Structural Dynamics &

Systems Thinking

ChallengingBeliefs &

Assumptions

Team Learning

BuildingSharedVision

Clarifying,Aligning

& Integrating

EngagingOthers across Boundaries

Collective Intelligence / Collective Sensing

Organ

ization D

esign

Leadership

Val

ues

& B

ehav

ior

PersonalExcellence

Remedy 10: Build the Performance & Capability of Management Team

Right People on “the Bus”

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21Trust & Transparency

Healthy Conflict

Shared Meaning

Mutual Commitment

Peer Accountability

Focus on the Results of the Whole

Enterprise

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Source: Patrick Lencioni

Source: Jim Collins

Source: Peter Senge

“A Great Idea is simply two Good Ideas coming together to meet for the first time.”

Create a networked enterprise to increase…

And put the “Old World” organization model to rest.

SpeedAgility

ResiliencyInnovation

Competitive Advantage

…and engage people to do the right thing.

Remedy 11: Unleash the Collective Intelligence & Experience of the company

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The impact of eliminating the underlying causes?

Deal Announced / Closed

Business / Employee Performance

& Engagement

100-day wall Time

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1. Accelerate the Integration Curve

2. Minimize the ‘Shock Dip’

And minimize lost revenue, lost opportunity cost, cash flow burn rate

Shock Dip

Integration Curve

And the impact of doing more transactions more successfully?

Increased valuation of the company

Greater predictability (not forecasting) future performance & profit growth.

Greater competitive advantage, larger marketshare

Greater profitability

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A Behavioral Perspective in the Transaction Life-Cycle

Due Diligence & Integration Forecast

Integration Plan Implementation

Learn, Adjust, & Sustain

Go / No Go Decision Deal Close

Integration Planning

Pre-Acquisition Alignment &

Planning

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An experience behavioral perspective will ...

Build shared understanding & commitment, before and after the deal.Improve accuracy of deal valuation.Maintain engaged performance and productivity, before and after the deal.Make the marriage successful.

Torrez BV: Operating at the intersection of diverse disciplines to help you Unleash your Intangible Assets

Business ProcessDesign &

OptimizationImplementation

LeadershipDevelopment

StrategyDevelopment

Org Psychology& Behavior

Change

Performance Care･ Problem Resolution

･ Conflict, Infighting, Stress

･ Commitment, Accountability

･ Trust

SustainedBusiness

PerformanceImprovement

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• Generate sustained growth and increased returns, by fueling organic or buy-and-build strategies…in a sustainable manner.

• Unleash significant untapped value hidden by behavioral and operational constraints at all levels and links in the value chain.

• Build capability of management teams to predictably, consistently run and grow the business while mitigating performance risks.

• Accelerate implementation of strategy and achievement of targets.• Create healthy, dynamic, Built-to-Last companies

As a partner with Private Equity, M&A Advisories, and Family Offices I help:

Joe TorrezTorrez BV

[email protected]+31 6 3430 5420The Netherlands

www.torrezbv.comwww.twitter/torrezbv

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