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Written by:

• Jim Lamb, Managing Director,RSM McGladrey
• Greg Maddux, Director, RSMMcGladrey
• Tom Alyea, Director, RSMMcGladrey
• John St. Clair, Director,RSM McGladrey

During the strategy and duediligence of any merger or acquisition, there are always significantexpectations for operational improvement, gaining a greater market share orcreating a competitive advantage in the market place. Obviously, there is a lotof work, coordination, financing and perseverance required to just get the dealdone. If you are a public company, there are numerous regulatory hurdles tosatisfy and shareholders to appease. There are many risks that must bemitigated or eliminated. Some of these risks include:

• Lack of integrationresources
• Cultural clash
• Difficulty in maintainingfinancial performance
• Lack of a shared vision andstrategy
• Difficulty in retaining keyemployees
• Challenges related toretaining and growing the customer base

There is great celebrationwhen the deal is done. But what happens after the deal?  This article will share key merger andacquisition tactics designed to increase the likelihood of achieving your goals.

Studies have repeatedlyshown that many mergers and acquisitions fail and do not result in theanticipated benefits. For example, research shows:

• More than 50 percent ofacquisitions fail to achieve the expected financial results
• Approximately 70 percent ofcorporate mergers do not realize the anticipated benefits
• Companies with multiplebusiness units or product lines too often operate in silos that preventanticipated financial returns and effective customer experience from occurring.

These statistics indicatethat companies often underestimate the challenges associated with mergers andacquisitions and the critical importance of effective integration. To beatthese odds, companies must have a clear strategic vision for the combinedorganization, establish specific integration objectives and targets, andsuccessfully execute detailed plans for realizing the integration objectives.

As with all complexprojects, the key to successful implementation is thorough and completeplanning. This approach involves tactical steps to help prevent harmfuldisruption to your core business operations or loss of key personnel andcustomers.

It is critical to gainmomentum towards integration goals as soon as possible following a merger oracquisition announcement. Making rapid strides toward integration between the datethe proposed transaction is announced and the transaction close date helpsposition the organization for timely implementation of key integration tasks.Important steps for integration planning include:

• Identify the key executivesresponsible for integration
• Confirm the specific goalsfor the merger or acquisition
• Identify key functionalareas of integration. Typically, there are 20 to 50 discreet areas ofintegration. The number of integration areas is daunting, making prioritizationcritical. Lack of structured integration plans for prioritized areas is usuallythe root cause for not achieving the desired goals.
  
  The merger or acquisition becomesa complex transformation project that requires extensive time and effort fromyour leadership team and many of your subject matter experts. Unfortunately,most of the individuals needed for the post merger integration have existingfull time responsibilities. Careful consideration to reprioritizeresponsibilities to allow for an appropriate level of involvement is needed tokeep the projects moving forward.
  
  For example, we recentlyworked with two middle market technology service firms that needed to developand implement integration plans across all functional areas. Like many mergeror acquisition transactions, these companies had to develop integrated plansfor customer-facing functions like sales, marketing, communications andinvestor relations. Additionally, integration plans were required for numerousadministrative and back office functions, processes and systems including,executive administration, financial accounting, human resources, purchasing,information technology, legal and other areas.
  
• Identify areas where cross-functionalteamwork is required. Companies tend to organize by departments. However, mostprocesses cross multiple departments. For instance, consider selling a newproduct or service. Typically, this process includes the sales department,accounting function for revenue recognition, legal for terms and conditions,and delivery or shipping to fulfill the sales agreement. The departmentinvolvement, analysis and migration that needs to occur for effectiveintegration impacts each of these departments for the two companies.
• Use a “best fit” approach. Giventhe degree of change and turmoil that is caused by merger or acquisitionactivities, we generally do not recommend initiating significant reengineeringor improvement efforts while conducting merger integration activities. Instead,as a general rule, we recommend a “best fit” approach whereby each company’sexisting processes, systems, procedures and controls are considered in light ofthe organization’s future needs. A “best fit” selection is then made fromexisting processes based on agreed-upon guidelines. Migrate only one company’sprocess to the other company’s process. This approach may not be optimal, but satisfiesmost short-term needs. Reengineering and process improvement should be avoidedand usually considered for a future wave of improvement initiatives onceintegration efforts have effectively been implemented.

There are several key factorsfor optimal integration, including:

• Perform thorough duediligence
• Select integration leaderswho understand the strategic rationale for the acquisition or initiative
• Assess people, processes andtechnology for common functions across the organizations
• Determine which factors ofthe existing company should be transferred to the acquired party if strategicobjectives are to be met
• Determine which factors ofthe acquired party’s culture are incompatible with the current culture
• Develop and implement adetailed plan for implanting desired cultural factors and management practices;creating integrated organization structures and processes; and capturing bestpractices of the acquired company or business unit
• Determine integratedfinancial and operational targets and measure results
• Reward behavior thatadvances integration objectives
• Implement integrationopportunities quickly where possible

Outlined below are someadditional best practices for successful mergers and acquisitions.

Integration Teams
These teams should be givenclear objectives, scope guidelines, milestone dates and specific targets forintegration success for their functional area. In order for each of the teamsto perform their analysis and determine integration recommendationsconcurrently and effectively, a consistent structured methodology must beutilized. Required skills and tools include facilitated leadership skills,effective team roles and composition, business case templates, integrationplanning templates and process flow mapping tools.

Cultural Integration
The way in which integrationactivities are planned, conducted and communicated have a significant impact onwhether the combined organization will truly act as an integrated unit. Ourapproach for merger or acquisition integration includes cultural integrationtactics such as, encouraging and rewarding genuine collaboration amongst teammembers, managing the implementation to ensure that one culture does not seekto dominate the other and creating balanced teams to help prevent hierarchicalturf wars.

Retention Plans
A major challenge is thebalance between keeping the star employees and reducing redundant positions. Startwith a blank paper and design your desired organization aligned to the businessvision. Careful consideration and assessment of associates is needed.  If you start with a list of people, there is atendency to find positions for virtually everyone.

Develop a retention planbased on your people plan for the new organization and your need to accomplishthe migration projects. The retention plan typically provides a meaningfulbonus for employees that fulfill their duties and remain with the firm througha specified date.

Program Management Office(PMO)
Critical day-to-dayoversight is necessary in order to help ensure progress toward milestones,critical path items, resource planning, planned communications and targeted results.Twenty to 50 integrated projects require dedicated oversight. The PMO is anessential component of successful integration planning and implementation giventhe numerous initiatives, dependencies, and risks. Mergers and largeracquisitions that do not have a full time dedicated PMO usually are notsuccessful.

Following these bestpractices is critical to the ultimate success of the effort. For example, werecently provided PMO services for the merger of two similar sized publiccompanies. Working closely with executives and their teams to develop theintegration approach, define integration plans and build plans to transform theculture of the combined organizations were important functions of the programmanagement office.   The PMO helpedprovide the structure, disciplined decision-making and accountability forachieving strategic integration objectives and targeted financial savings.

You can beat the odds andhave a successful merger or acquisition through commitment to your strategicvision and structured integration planning. What do you do after the Deal?  It’s all in the details.

For more information,contact Jim Lamb, managing director at RSM McGladrey - a leading provider oftax and business consulting services to midsized companies. You can reach himat 816.753.3000 or jim.lamb@rsmi.com.