Profitable Growth by Acquisition 573sales forces of the two companies remained independent and Cerent’s sales-
people received pay increases of 15% to 20% to bring them in line with Cisco’s
compensation practices. As a result, there was little turnover and sales grew.
Cisco executives realized early on that the strategic rationale for an ac-
quisition and their grand plans for the future meant little to the target’s mid-
and low-level employees. They had more basic concerns like job retention and
changes in their day-to-day activities. Cisco had also learned that quickly win-
ning over these employees—and keeping them focused on their jobs—was crit-
ical to a successful implementation. This process begins weeks before the deal
is done, as the Cisco transition team works to map each employee at the target
into a Cisco job. As each Cerent employee left the meeting where the acquisi-
tion was announced, they were given an information packet on Cisco, tele-
phone and e-mail contacts for Cisco executives, and a chart comparing the
vacation, medical, and retirement benefits of the two companies. There were
follow-up sessions over the next several days to answer any lingering questions.
Cisco also agreed to honor several aspects of Cerent’s personnel policies that
were more generous than their own, such as providing more-generous expense
allowances and permitting previously promised sabbaticals to be taken. Cisco
understood that these are relatively small items in the larger context of a suc-
cessful and timely transition.
When the merger was actually completed, Cerent employees had new IDs
and business cards within days. By the following week, the e-mail and voice-
mail systems had been converted to Cisco’s standards and all of Cerent’s com-
puter systems were updated. By the end of September, one month after the
acquisition announcement, the new employee mapping had been implemented.
Most employees kept their original jobs and bosses; about 30 were reassigned
because they had positions that overlapped directly with Cisco workers. Over-
all, there was little turnover.
This example highlights some of the factors important to developing and
implementing a successful acquisition strategy. However, all companies are not
like Cisco, and what works for them may not guarantee you a winning acquisi-
tion plan. Cisco is fortunate to be in a rapidly growing industry in continuous
need of new technologies and products. It also has the benefit of a high stock
market valuation, which makes its shares valuable currency for making acquisi-
tions. At the same time, the keys to successful implementation discussed previ-
ously—that is, concern for the customer, taking care of salespeople, and
understanding what creates employee loyalty—are universal and must be part
of any acquisition strategy. In the next section we look more closely at the ques-
tion of value creation in M&A decisions.
CREATING VALUE IN MERGERS
AND ACQUISITIONS
We have already presented the dubious historical evidence on the financial
performance of mergers and acquisitions. This record makes it clear that a