Inarticulate ramblings of a management consultant

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

Leadership in transactions – staying close but not too close!

Leaders in M&A dilbert

With thanks to Toby Tester who suggested that I write something on this subject.

Up until now, I’ve spent a lot of time writing about the challenges of programme leadership for the post deal integration process, with all its complexities and more importantly, opacity arising from the peculiarities of the situation; lack of access to information, business case based on assumptions which cannot be validated until the deal is completed, limited resources etc.

What I’d like to pick up upon today is the challenge for business leaders as they attempt to manage the organic and the in-organic, the strategic and the tactical, the existing and the new (in terms of customers, employees, products and services, culture). I’m going to do this in the context of two specific CEOs from transactions that I’ve worked on…one where the deal was extremely successful in terms of synergies achieved and business performance post integration, and the other where the results were poor.

I recognise that this is not a great sample size (!) but it may help to illustrate some of the challenges for business leaders who embark on non-organic growth.

A short summary of both deals:

Red Plus Sign

A large Asian company buying a European owned business with operations around SE Asia. The bid to win was significantly higher than the nearest competitor, reflecting the scarcity of asset and a confidence in long term growth prospects and short term synergies. The deal was extremely high profile and in a sector which is massively dependent on relationships and people…the potential for attrition of customers and employees was very high.

Minus Sign

Top five European company (in its sector) buying a substantial business in a major SE Asian market. The acquirer was reasonably experienced in doing deals, although not in this particular country. The contrast in terms of operating efficiency between the two businesses was stark and much of the value creation was expected through knowledge share, enabling the Asian business to command a premium whilst leveraging existing customers through a powerful distribution network.

Both leaders were exposed to similar challenges:

  • Diligence was limited because of anti-trust challenges. The business case was largely based on a set of assumptions which could not be validated until after completion.
  • The nature of the transactions required the on-going commitment of the existing leadership in some shape. Whilst not family owned, the targets displayed many of the same characteristics in terms of deep, network / relationship based decision making processes, long term employees, substantial under-investment in systems infrastructure, and largely undocumented processes for day-to-day operations. The gap between current state and, in some cases, mandatory process efficiency was substantial and the need to deal with it, immediate.
  • Whilst the deals were large, they represented a relatively small part of the business portfolio. Both deals were, however, very public in terms of profile.

So what were the characteristics of the successful leader…what did he do to ensure success? There were 4 distinct actions which substantially changed the nature of the deal.

  • In an extremely unusual first week’s communication process, a relatively public acknowledgement of his company’s previous ‘failures’ in the process of integration…and a recognition that the approach for this deal was going to be substantially different.
  • A steely eyed focus on the purpose of the transaction (in this case, revenue synergies through cross sell), with a commitment that there would be no organisational restructuring to conflict with customer / employee retention and growth. The key priorities for the integration were therefore defended at the highest level with a minimum of distraction. As an example which absolutely substantiated this focus:
    • Direct control from the parent was only to be exercised where another external party required it. All other aspects, including the acquirers existing complementary capability would be managed by the acquired leadership
  • Personal involvement at Steering Committee level, often acting as a lightning conductor for disputes. Critically, maintaining a personal relationship with the leadership of the acquired business to resolve any issues directly and immediately. His role as an interlocutor or translator of culture and intent was critical in the early stages of the deal. For the Integration lead, this was incredibly important ‘air cover’.
  • Acceptance of his role as ambassador but not decision maker. Autonomy was strictly maintained for those directly involved in the deal.

And the characteristics of the less successful leader?

  • Limited delegation of authority and continued involvement in highly operational issues. This led to slow decision making as all decisions continued to be referred to the top of the organisation…with, in many cases, little competence at that level to reach appropriate conclusions.
  • Little interaction post announcement with the existing leadership, creating the impression of ‘status quo’ going forward. A confrontational ‘winner takes all’ approach to any issues.
  • In the relationship with head office in Europe, no attempt to manage expectations around process improvement, leading to a confusion of priorities with minimal resources. The result was poorly defined objectives and delayed deliverables…and substantial distraction at the local level to business as usual. Performance dipped substantially in the first year, creating further pressure for operational improvement.

It’s always hard to compare transactions and come up with some kind of set of learnings. Nonetheless, as a minimum, the message about autonomy and decision making is key.

At a time when a heightened sense of personal risk is likely to discourage operational / integration leaders from exercising their normal levels of autonomy, the actions of the CEO in maintaining confidence and resolutely resisting engagement at an operational level are critical.

Categories: C suite leadership, Change management, Communication, Corporate Culture, Functional Leadership, Mergers & acquisitions, post acquisition integration, Post merger integration, Transformation, Value Preservation

Tags: , , ,

2 replies

  1. Hi Ben, to summarise the traits in weak leadership:
    1. Inability to delegate – wanting to be involved in everything.
    2. Slow decision making because there was no delegation.
    3. Hands off approach post-close.
    4. Expectations management was non-existent.
    I know it sounds a bit cliched but leadership is the ‘secret sauce’ to success or failure. The challenge is to find ways combat poor leadership. It’s ‘the elephant in the room’. No one really wants to talk about it and all have to live within the confines it creates.

    Like

    • Good summary…the challenge in writing this is that the normal formula for leadership does not always work in deals. Many of the short cuts which companies use in the informal channels around messaging, the anticipation of requirements by direct reports based on their collective history, the intimate understanding of what’s acceptable and unacceptable from a cultural perspective, don’t work in the acquired business because the rules there are different!

      Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s