Getting to know the mores and folkways of an acquired company can make for a smooth merger process.
Although there are those who believe the large piles of cash on corporate balance sheets are being held as a hedge against an anti-business administration and a bumpy economic recovery, many instead predict they will be used to fuel M&A activity in the coming quarters. Therefore it is prudent for the treasury departments of acquisitive companies to have a ready playbook for their M&A activity that covers all of the key steps necessary from the identification of a potential target to post-close integration (see related story here).
In a recent survey of The NeuGroup’s Engineering & Construction Treasurers’ Peer Group (E&CTPG), which is a very acquisitive industry sector, approximately half of the members said they had a playbook that guided them through the acquisition process. Then in a meeting of that group, members discussed the various characteristics of a potential M&A target that determines treasury’s approach and requirements. For example, is the target domestic or foreign, large or small, a core service provider or a non-core service provider, centralized or decentralized? While these are all relevant considerations, most would not be a show-stopper following a Non-Binding Letter of Intent.
One consideration that is, however, is the culture of the target company.
A tale of two acquisitions
At the E&CTPG meeting one member described two dramatically different acquisitions that occurred within about a year of each other:
One target company was very prideful about their business and abilities and weren’t very supportive of being acquired, while the other company was being sold by a company that didn’t appreciate them. The second company was just glad that someone wanted them and therefore much more supportive and cooperative. Consequently, the second company integrated very smoothly, while the other company, after nearly 10 years, is still problematic.
The lesson here is to have a clear understanding of the attitudes within the company about being acquired and why they are being acquired. The member explained that the first company was being acquired because of their success while the second company was being acquired because their parent needed cash and this business was expendable. According to another member, one of the goals in an acquisition is to “win hearts and minds” at the target company. If this can’t be done, problems can drag on for years.
Clearly cultural differences can greatly hinder, if not ruin the effort. The issue is so critical for one member that according to their treasurer “the culture question always trumps the strategic opportunity. Being a bad fit culturally is a non-starter.”