The fears of a CEO post-acquisition

December 3, 2015

The trouble with acquisitions is that not enough of the people leading them have any fears. There is very little time to think in the process and, beyond the mechanics of what price everyone will pay and the terms of the deal, no-one does much thinking beyond the deal room.

I’ve spent years doing deals – as an adviser, as a board member responsible for acquisitions and as a chief executive.

I look back now and am slightly appalled at how we went about them. I think we focused on many of the wrong things, didn’t build in time to think and, most of all, treated the companies we acquired in a shockingly cavalier manner.

Hindsight is always a great thing, but it is good if we use it to learn and change things. Here I outline some of the issues, what we could have done better – and how we could have created more value.

Maybe some of this also throws a spotlight on why so many mergers and acquisitions fail?

What happens post-acquisition?
Here is a very typical scenario. I was director responsible for acquisitions and we bought a company in the States. We bought them because they were good and our thinking was – let them carry on. They can fly over once a month for our board meeting, send over monthly accounts and so long as they hit their agreed targets, we did not need to do more.

No-one ever asked me, what more could we do with that business? Do they feel part of our family? What have we done to show we are seriously interested in them? All my chief executive was interested in was my quarterly targets and did we hit them.

I was very,very busy and it was easy to justify why there simply wasn’t time for me to go to America and help to embed the business and support the management team. I think it must have been very lonely for them. We flew in quarterly for a review meeting, but I suspect that felt more like an inquisition.

Looking back now, what would I have done differently?

– I should have sent someone from our business development team to America for at least several months. They would have been an initial bridge between our companies, got to know everything about the company and really helped it to flourish
– I would not assume that business post-acquisition would continue as before – more of that below
– I would have benefited from a mentor asking me what I was doing about the acquisition, how were they feeling, what was I doing to get the best value from the company
– Our chairman or an NED should also have been challenging me – not leave this to the CEO to embed an acquisition

And if we had done all this, I think we would have got far more value from the process. This particular acquisition was OK, nothing disastrous – you could say it ‘worked’. But I suspect we missed so many tricks by not working more closely and supporting the management team rather than monitoring.

Focus on numbers not people
I don’t remember a single conversation in those heady deal days when we talked about the people in a target company and what their motivations would be, post-acquisition.

An acquisition changes the landscape for a company enormously. The management team often becomes personally wealthy and no longer has the same incentives as 24 hours before signing the paperwork. For some they will see opportunities to rise to the top of the new parent company, some will start questioning what life is about once they have financial security – and may even want to start ‘giving back’. Whatever the difference, there is a change in motivation. And this will affect the business, its strategy and whether everyone still has a common picture of what the future looks like.

Rob Wilmot was one of the founders of Freeserve launched by Dixons, which was floated and then sold to France Telecom for £1.6bn; at the age of 29 he was the youngest ever executive of a FTSE 100 company. Rob tells the story of being on a beach with his wife in America , planning to fulfil a dream of buying a beach house and living ‘on the beach’. Then he got the call to say his money from the deal was in his bank. He punched the air and was euphoric for all of minutes. But within hours he started feeling quite depressed. What was he going to do? By the end of the afternoon he and his wife agreed to pack their bags and return to Yorkshire with the intention of doing something significant to help Barnsley, where he came from.

I tell this story because more often than not, management genuinely think they will carry on as before. It is only when a deal is done and the money is in the bank they really start evaluating what they want from life. And it is important that a chief executive, chairman, NED are all close to the management team to spot where their thinking is going and support through changes.

What I now think we should have done is
Consider management motivations post-acquisition and have a process to address changes in the 100 day plan. Management themselves will not necessarily know how they are going to change pre-deal
Do a value alignment – identify what we were buying. Where was the value – was it in the people, the products, the brand – and which of these would produce the predicted growth?
Got the chairman to ask more questions
Provided a challenge for the chief executive to spend time on the acquisition post-deal. The natural tendency in deals is to put all your energy into the deal process itself – lawyers, documents, late night pizzas – and then move on to the next big thing. I would get the chief executive to think through the risks and opportunities of the acquisition and what their role will be in ensuring success
I strongly believe that if more time is put into thinking about the people side of deals, not only will there be significantly fewer failures, but there will be far more value created overall.

If you have been a deal-maker, does any of this resonate with you? What would you do differently – with hindsight?!

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