M&A: An Event or a Discipline? How Ready Are You For Growth?
The consolidation of two businesses may start with marketing or distribution agreements, a joint venture or a CEO call. When one of the organizations gets interested in deepening the relationship, things can heat up fast. Would you be ready for that call from your CEO?
Most companies continuously assess the market to spot growth opportunities in order to stay ahead of the competition. No matter your perception of your company's penchant for growth, the real issue is your readiness for a dramatic increase in business and volumes. This growth event could be driven by a merger, new product introduction, competitive stumble, or advantages from a regulatory change. Would you be ready to support a significant growth increase? Would your plan and estimates be credible enough to survive a time-compressed, emotional, and suspicious evaluation process?
Your level of preparation is critical for at least two reasons. First, your ability to articulate a solid plan will give the CEO a health perspective on risk and capacity. If not, the CEO might hesitate and could potentially jeopardize the entire opportunity. We will discuss an offensive versus defensive growth preparation in the next blog in this series.
Second, M&A opportunities often progress more rapidly than expected. It is not unusual to receive a call instructing you to board a flight that night and spend the next 2 days assessing a target in a guarded conference room at an undisclosed location. Will you be prepared to board that flight with a plan and a credible basis for your estimates? Depending on the answer, you could be seen as the key person to drive the estimates and the strategic discussion. This is a high risk situation if you are well prepared; it is career suicide not to be prepared.
While there are many variables involved in a merger, it is no excuse for not having some preparation developed. One preparation approach is to create 1-3 scenarios and develop a plan for each. For one client we chose to construct a scenario involving the merger of a competitor with similar product lines, minimum distribution overlap, all key employees retained, and business volumes expected to double. We developed a high level workplan, target operating model, assumptions on organizational structure and surviving systems, and schedule and resource estimates. We structured the key artifacts to be flexible and presented the plan to senior management, which was well received.
There are benefits from this type of planning even if a merger isn't imminent:
- Improves planning skills. Artifacts created (methodology, workplans and estimating models) can be tested early
- Socializes approaches, assumptions and planning estimates, which will improve the credibility of your plan
- Discovers weaknesses in your processes, technology, operations and controls when you examine them against increased volumes. Discovery before crisis is critical.
- Uncovers sensitive topics like how to handle consolidating talent, facilities, products, and compensation plans. This frames the Change Management approach needed to reduce resistance and increase engagement
While this type of preparation can be undertaken with existing resources, given the intensity and importance of such work, a second approach is to utilize a part-time task force to deploy this effort in phases. This approach allows for more focus on risks and workplan gaps. With an experienced team of employees or consultants leveraging the time of your company's experts and adhering to project management best practices, such plans can be professionally completed in a 3-6 month period with no duress on key resources.
Laying out a plan to be advanced over several months is a highly proactive and organized approach that will resonate well with employees who may be required to contribute to the plan. This approach may also help reduce the rumors that a deal may be in the works.
At one client, we decided to approach the development of a plan by developing a detailed methodology for the due diligence, a basic plan for integration, and a high level approach to stabilization. We were acutely aware that detailed planning had diminishing returns at this point in the process. We planned a 2nd phase to develop more granular detail for the later phases.
Experts at the client were in short supply so we in developing the plan developed a draft due diligence process with one more level of detail. We went to the major task level and then had the experts review. We revised and drilled critical tasks into detail steps. Again we had the experts review, thus leveraging their scarce availability.
Planning for a merger or other growth explosion should be recognized as a key priority and requires the backing of leadership in order to be recognized as a priority. At times this priority will accelerate but it's important to keep momentum and institutional expertise. Leadership must also be instrumental in providing clarity on an approach. By having a prepared plan of attack prior to due diligence and integration, senior management can move with swift credibility, increase retention of key talent and customers, contain costs, manage regulatory acceptance, and enable the unparalleled opportunity to realize all possible benefits.