Diversification through acquisitions and mergers is a strategy many manufacturers have adopted recently to transition away from both volatile and flat markets. And, althought it's a gamble, manufacturers can mitigate some of the inherent risks through due diligence and an integration plan that takes effect early in the process.
After the Deal Closes
After Hillenbrand completes a buyout, the company introduces its newly acquired firm to the Hillenbrand version of lean through a “lean boot camp,” Bohman says. The lean boot camp is an intense training program that takes place over several days for the top management people who are joining the Hillenbrand team. Hillenbrand then works with the new organization to identify continuous-improvement projects that could benefit the entire company.
Communication is critical during this initial integration period, say experienced M&A professionals. The first day after Eaton completed the Cooper transaction, Eaton representatives visited nearly all of Cooper’s 100-plus sites, Cutler says. “Those were open communications meetings to help them understand our values and how we do business,” he recalls. “It’s a two-way communication so employees can ask their questions. That’s about establishing a culture of openness and transparency.”
Eaton follows that with training the new employees on the company’s ethical values. The company then focuses on leadership integration, which involves the leaders of Eaton and the new organization joining together to discuss business processes. “It is very much an immersion process where we try to get the companies to come together sooner rather than later,” Cutler says. “And it’s not a situation where the Eaton idea wins. We want to understand the best way to do things.”
Aligning the leadership teams on the company’s core objectives should take place as the companies announce their intent to merge, which typically takes place months before the deal closes, says Tracy Benson, CEO of On the Same Page LLC, an M&A consultancy firm based in Katonah, N.Y. “Some of this will not be known until the process unfolds; however, the leadership and integration teams need to be thinking about these issues well ahead of time,” Benson says. “This allows the team to set direction and allocate resources with communication that is clear, in line with what will be taking place and consistent.”
Preparing the sales organization is another immediate step manufacturing leaders should take after the close date, says Mary Cianni, global leader, M&A services, Towers Watson. For instance, if sales representatives from both organizations have overlapping clients, the company needs to coordinate who will handle that particular client to avoid confusion, Cianni says. The company may also want to consider establishing prepared talking points for the sales staff, such as frequently-asked questions, to address customer questions, she says. More importantly, says Cianni, companies need to quickly make any planned changes to the sales staff so the organization doesn’t lose top-performing sales people who flee because of the uncertainty.
One of Eaton’s top priorities after an acquisition is completing the integration process within a two- to three-year timeframe, Cutler says. “We believe when these integrations go on four or five or six years, it’s akin to rolling thunder in that no one knows what the final state will be,” he says. “While I think sometimes people think a slow integration will be much better, I think most people would prefer to get on with the work and get it behind them versus not knowing how many more changes are coming sometime in the near future.”
3 Post-Merger Priorities
Bringing two organizations together can be a confusing, disorganized mess if companies don’t have a clear post-merger strategy in place, says Wayne Pinnell, managing director of Haskell & White LLP. Pinnell is a certified public accountant who has consulted with several midsize manufacturing firms during the merger process. Here, Pinnell outlines three steps manufacturers should take immediately following a merger:
- Communication with employees, suppliers and customers is of high importance after a merger. Both companies need to discuss the “why” and “what it means” for each group. Employee issues may include discussions of headcount realignment, growth opportunities and new or improved benefits. Manufacturers may need to speak with suppliers about their increased needs, volume discounts, lead times or just-in-time considerations. Customers will want to know what the merger means in terms of product and service offerings and any changes they should expect in the relationship.
- The new entity must evaluate redundancies in personnel, systems, facilities and equipment. There is usually a planned “efficiency factor” for such mergers, and there should be a plan to integrate and eliminate redundancies to help achieve the efficiency goals.
- The new entity must conduct an overall contract review, negotiation and revision for banking, suppliers, sales commitments, benefit packages, etc.
