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Five Strengths for Successful M&A
Joe Panebianco, Director of Manufacturing Engineering, Tekni-Plex, Inc
Leading up to and immediately following an acquisition, employees are filled with questions of uncertainty: What does the new owner expect? Will I lose my job? People will respond differently to this uncertainty. Some will be distracted, forgetful or take shortcuts to show the new owner that they are a good worker. These shortcuts and distractions can cause people to make mistakes or forget safety practices, which then lead to unsafe behaviors, near misses, accidents, first aid and lost time.
In addition to the obvious human factor, consider the impact that poor safety can have on a supply chain: lost time, lower productivity, higher claims and insurance costs. This can result in a slowdown of business integration, failure to realize expected synergies and creation of additional, unexpected costs. Having a well-established and successful safety program that can be shared will minimize these risks.
Be prepared with the processes, procedures and training that are needed for rapid implementation in the new company. Be ready to perform safety audits and risk assessments, train leadership and employees. Begin making safety part of everyone’s job expectations. Have an effective safety policy and a communication plan prepared so that on Day One you are ready to convey expectations for working safely.
Just as in safety, the questions surrounding employment uncertainty and the desire to demonstrate that they are hardworkers can cause employees to take shortcuts or make careless errors. These errors can result in quality issues in both products and services, leading to additional costs for customer complaints, returns and warranty claims.
Quality issues can also undermine brand equity and loyalty, causing customers to change business partners and thereby reduce company revenue and earnings. Not only will quality problems result in delaying or even failing to realize expected synergies, but they will also reduce the value of the organization as a whole.
To prepare for upcoming M&A, standardize your QA & QC practices and procedures across your existing business.
Effective supply chain integration starts long before the search for M&A opportunities begins
Develop expert knowledge in quality requirements for your industry, and if potential acquisitions are in a different industry, learn about the appropriate quality standards and expectations so that you can be prepared. This will also allow you to evaluate the quality systems of potential acquisitions and assess the cost of quality during the due diligence process.
If you are acquiring only part of a business, ensure that all documents, customer records and quality processes are transferred with the acquisition. This will ensure that quality personnel are able to continue inspections that are up to customer standards.
It is hard to overstate how essential IT systems are for today’s businesses. We often take IT for granted; we expect that the systems are working around the clock. For companies to start working together as a single team post-M&A, integrating IT systems quickly is essential. Enabling the teams to communicate through email and messaging, hold virtual meetings, share documents and data, as well as creating a common platform for accounting to use for reporting, are all important.
Before the acquisition, build an IT infrastructure that is flexible and capable of expansion so that you’re not caught with a system that can’t accommodate the integration of new businesses. Ensure that training resources are allocated to show people how to use the new systems and that help-desk support is available for questions.
Synergies in procurement are often quick to be realized and have a high chance for success, so being prepared and quick to act after closing on the acquisition in essential. Procurement synergies often focus on areas such as insurance, travel, maintenance, repair and operating supplies (MRO), IT, energy and other supplies to find savings.
Having a procurement group with experts that are organized around some key functional areas will help. Consider the following working groups: category management for large specific areas of spend, a strategic sourcing group working to find value in low-cost countries, supply chain management for tactical purchasing and delivery of goods, and supplier development for working on cost reduction and quality improvement. Having these groups established and staffed with experts will help you realize procurement synergies post-M&A.
Business Operating System
All of the items mentioned so far have a few common characteristics: standards, expectations and processes. This is true for every efficiently run business and achieving this doesn’t happen overnight. It also is not the result of doing one or two things right. Establishing a Business Operating System provides the platform for improvement and the sustainment of improvements. Create and deploy a Business Operating System to establish the standards by which everyone operates.
While the specifics and tools of a Business Operating System will vary based on industry and functional organization, it needs to accomplish three things. It will provide your organization with (1) the ability to identify and resolve abnormal conditions, (2) the processes for creating priorities and assigning resources, and (3) the support to build a culture of accountability. Having a Business Operating System in place and ready to deploy will help create consistency, stability and drive improvement in an acquisition.
Having a successful M&A project starts long before the close of the deal. By preparing your organization, you not only increase your likelihood of realizing the expected synergies, but you’ll be able to put your best foot forward and show why you’re the right company for the acquisition. In the M&A world, the highest price doesn’t always win. Owners often consider the potential suitor that is the best fit and can provide the company with the best chances for success and growth. As Thomas Edison said: “We should remember that good fortune often happens when opportunity meets with preparation.”