Inarticulate ramblings of a management consultant

the day to day experiences of a consultant operating in weird and wonderful client situations

Losing knowledge, insight and trust when you need it most…leveraging the value of an exiting CEO in a deal

  I’m working on a couple of transactions at the moment and was reminded recently again of the critical role that an exiting CEO can play in smoothing the path of a deal, often at its most important phase, in the post merger integration. For those of you who have been involved in M&A, you will recognise the quintessential challenge which an acquirer faces in dealing with this individual. The facts are relatively straightforward:

  • He / she will be one of the first casualties of the deal. Typically given the nature of the deal marketplace, the new CEO is appointed by the acquirer and rarely comes from the acquired business.
  • Financially, the exiting CEO will be looked after…either through a short-term retention package or through a settlement around redundancy, giving him / her the relative freedom to make some personal decisions about what to do next.

Accepting this as the status quo is in my opinion a mistake, particularly in cases where the CEO concerned has played a key role in the development of the business, leading to its sale and continues to be valued by the employee base. He is likely to have been involved in the hiring, mentoring, and career development of key people, notably his / her direct reports, who will be important in the integration process. He / she will have had an impact on the culture of the organisation in the way that decisions are made, where autonomy sits in the corporate hierarchy, what level of risk appetite exists and perhaps in the flow of information around the business. He / she will have had a role to play in the informal organisational structure, where the key influencers sit and how they interact. Now, without doubt, having him / her around can be more than awkward for the incoming CEO. There is the potential for a disruptive influence, for a lack of clarity around who the ultimate decision maker is, perhaps even for the creation of some kind of corporate terrorist who will actively undermine the new direction of the business. There is also the possibility that he / she does not want to be involved in the next stage of the company’s development. Clearly these are all unacceptable and need to be dealt with quickly. However, let me create an alternative scenario. Let’s consider the role that this person could play given their unusual position in the merging organisation and with the appropriate good will:

  • An initial engagement between announcement and completion which focuses purely on the prevention of value destruction…retention of key individuals, strong and well directed communication around the transaction as much as that is possible, engagement of the key customers maintaining service standards and relationship management during a disruptive period. In fact, in my experience this period has significant potential for major value destruction as the attention and focus of key people drifts to the prospects of their immediate future.
  • A role around Day 1 and for the first 100 days which is as chief communicator and translator / interlocutor for the acquired employee base, using that trust, those relationships and that intimate knowledge of how the business works to create some stability in the critical initial period. I’ve worked on several transactions where the exiting CEO used his influence to translate the requirements and expectations of the acquirer to his workforce, giving an understanding of culture and work processes which removed the emotion from the deal.
  • An adviser to the integration steering committee, to be used as necessary to comment on and provide insight on direction, plans and key initial activities.

And in return for these important actions, a compensation structure which is firmly linked to some initial KPIs around key employee and customer novation / retention, effectiveness of communication flows, and perhaps stability of revenue / cost post completion. I read in the FT and indeed many of my colleagues are suggesting that there is an upturn again in the deal volume being experienced. Having spent 14 years consulting in this arena, it would be great if we could finally move away from the cycle of value destruction and find some new solutions to an old problem. Using the insight, relationships and knowledge of an exiting CEO might be a small step in the right direction.    

Categories: Change management, Complex transformation, Functional Leadership, Mergers & acquisitions, Post merger integration

Tags: , , , , , ,

2 replies

  1. Your blog has particular relevance to me having seen first hand the challenges involved in extracting value from corporate acquisitions. Working on global post merger integrations has revealed the ‘good the bad and the ugly’ of the post integration activities.

    My starting point is the rationale for a particular M&A deal. While most business schools refer to “synergies”, in particular cost and/or revenue benefits, the value of an acquisition may not be accurately reflected in the business case. This works both ways with the potential for unexpected benefits, which require the support of the target company senior management to realise. (Note that either CEO may become the CEO of the merged entity).

    While working on the integration of a global Financial Services company, it became obvious that the acquired company had excellent MI. This MI was one of the enablers behind the company’s successful sales culture. Along with leveraging customer cross-sell and expanding the acquirer’s client footprint, embedding this MI became a priority.

    An obstacle to realising this potential was the culture and attitudes of both the acquirer and the acquired company. For the acquirer it was a case of managing egos and discouraging posturing and other non-productive behaviours (The Ugly). At the same time, ongoing support and engagement from acquired companies management is required to integrate benefits (The Good). Treating employees of the acquired company as irrelevant, or worse, is guaranteed to garner resentment and a lack of engagement (The Bad).

    Which brings me to the CEO of the acquired company. Whatever the reasons for the acquisition, the acquired CEO and his/her team have created something worth millions or billions of dollars. As you eloquently – notwithstanding the title of this blog – point out the CEO has had an impact on the culture of this business. At a minimum this CEO should understand how things work including “decision making” and the “corporate hierarchy”.

    Extracting maximum value from an acquisition requires support from the acquired company’s management and staff. This in turn is dependent on the support and goodwill of both CEOs and their senior management teams. Building and maintaining the necessary support requires clear lines of accountability and responsibility during the transition. While ultimate responsibility for the success of an acquisition should be with the acquirer, support from the acquired CEO and team is indispensible.

    In an ideal situation, adopting a ‘best of both’ approach will result in the sum of the parts being greater than the whole. Setting KPIs for the acquired company senior management team as well as having a Steering Committee will help maximise the chances of success. Ultimately, it takes conviction, skill and the right mind-set to successfully integrate a company.

    John

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    • John, thanks for your great comment…much appreciated. I particularly like the concept that the acquired business has created some value and that the senior management team has contributed to it. More often than not, that history is too threatening for the incoming team and it’s buried under the weight of expectation / or under the attempt to paint the picture as bad, so that the new team can be perceived as ‘heroes’,

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