Profitable Growth by Acquisition 587dismal record is attributable to various causes, including ill-conceived acquisi-
tion strategies, poor target selection, overpayment, and failed implementation.
In a study of 45 Forbes 500 firms, Smolowitz and Hillyer ask senior executives
to rate a list of reasons for the poor performance record of acquisitions.^18 The
following were the five most frequently ranked factors:
- Cultural incompatibility.
- Clashing management styles and egos.
- Inability to implement change.
- Poor forecasting.
- Excessive optimism with regard to synergy.
The last two are premerger problems, but the first three occur in the post-
merger transition process. Deloitte & Touche Consulting estimates that 60% of
mergers fail largely because of integration approach. Managers must under-
stand that the acquisition closing dinner marks the end of one stage of the
transaction and the beginning of the process that will determine the deal’s ul-
timate success or failure. In this section, we brief ly discuss the following key
components of a successful implementation plan:
- Expect chaos and a loss of productivity.
- Create a detailed plan beforethe deal closes.
- First, keep your executives happy.
- Speed and communication are essential.
- Focus managerial resources on the sources of synergy.
- Culture, culture, culture.
The process of merging two firms creates havoc at every level of the or-
ganization. The moment the first rumors of a possible acquisition begin, an air
of uncertainty and anxiety permeates the company. The first casualty in this
environment is productivity, which grinds to a halt as the gossip network takes
over. While the executives debate grand, strategic issues, the employees are
concerned with more basic issues and need to know several key things about
their new employers, their compensation and their careers before productivity
will resume. Managers must understand that this “me first” attitude is human
nature and must be addressed—especially in transactions where the most im-
portant assets are people.
The first step in any postmerger implementation must be a detailed
plan. We saw how Cisco “maps” the future of every employee in a soon-to-be-
acquired firm. For those continuing on, their new position and duties within
Cisco are clearly defined from the beginning. The employees that will be re-
located or terminated are also identified and a separate plan for handling
them is created. Relocation and severance packages must be generous to sig-
nal retained workers that their new employer is ethical and fair. The second
reason for a detailed plan is that it allows transition costs to be accurately es-
timated. The costs to reconfigure, relocate, retrain, and sever employees