Post-Closing Integration in a Mad (Men) World
The Anatomy of a Deal Newsletter July 23, 2021
- The time to start developing an effective and comprehensive post-closing integration plan is weeks or months ahead of the closing itself.
- A successful integration plan will contemplate numerous issues, including identifying goals and project milestones, outlining the right people to contribute, establishing a budget, and more.
- Many customer relationships are dependent on individual employee relationships, so “finding synergies” in now-combined operations can be more difficult than simply eliminating duplicate roles.
- The often-overlooked internal communication plan for the employees of the newly combined entity is just as important as the customer-facing external communication plan.
This month, we conclude our short walk down Post-Closing Lane with perhaps the most nebulous, yet most important consideration of all: Post-Closing Integration.
Really smart people do lots of complex analysis to make sure a deal makes sense economically. And then the lawyers, accountants and others do their part to make sure the deal gets closed (relatively) smoothly and with minimal drag from things like taxes, third-party issues, etc.
But perhaps the most important job of all belongs to the team that is in charge of making sure the deal will work after the transaction closes. That’s what we call integration.
While it’s impossible to hit on all of the key components of an integration plan and every integration is different, we’ll touch on some of the key considerations this month, just to give you something to think about.
To help illustrate some of these key considerations, let’s examine the myriad issues Sterling Cooper Draper Pryce (SCDP) and Cutler, Gleason, and Chaough (CGC) faced when they merged firms to become Sterling Cooper & Partners (SCP).
Let’s start off with a real shocker: a successful post-closing integration begins with…a detailed post-closing integration plan. Guess when the best time is to start working on developing the plan and putting it into action? Before closing! And not just the day before closing, but several weeks ahead of closing.
So what do we do in this integration plan? Lots of things, and it will depend heavily on the specifics of the deal, the industry, the specific parties to the transaction, and more. But at a minimum, the plan should:
- Set out what we need to accomplish in order to achieve a smooth transition (more on this below);
- Identify the right people to get involved, usually from many different internal and external groups from both sides, such as operations, IT, accounting, HR, legal and more—in fact, these people need to be involved before the plan is adopted so that you have their input along the way;
- Include a budget for accomplishing the plan—yes, you should expect to invest meaningful dollars in making it work;
- Develop procedures for addressing problems and resolving or escalating issues quickly; and
- Provide realistic timelines to completion, together with specific milestones along the way so we can make sure everything remains on schedule.
Most mergers aren’t hastily hammered out at the bar between two creative directors wallowing in their sorrows over a doomed pitch to GM, as was the case with the merger that formed SCP. Just as there’s a dedicated deal team working on getting the deal done, there needs to be a dedicated integration team that’s totally focused on making sure the deal works after the ink is dry.
And lest there be any confusion, the deal team and the integration team need to work together and communicate throughout the process to make for a successful transaction. If both teams are working in silos, the chances of a successful deal become as fleeting as the nostalgia Don Draper shared while unveiling the Kodak Carousel ad campaign.
Synergies + Redundancies
In its most basic form, integration focuses on how to put two businesses together that were previously run separately. Each has its own distinct assets, contracts, and people, which may or may not be needed when the businesses are combined. These are some of the classic “synergies” that many buyers seek to achieve by doing the deal.
But, as you should probably expect by now, realizing these synergies often isn’t as easy as one might hope. It’s one thing to identify the potential value…it’s another thing entirely to actually achieve the benefit. Whether the buyer ultimately realizes this synergistic value depends entirely on how successful they are in planning for, and then executing, the transition.
The first step here is developing a detailed inventory of each of these components, why they exist, what purpose they perform in the business, and what restrictions or limitations—legal or practical—limit the ability to move on from any of them.
This could be as simple as realizing that the combined companies don’t need two separate telephone contracts anymore. On the other end of the spectrum, what do we do with the executive teams of both companies when we don’t need two sets of executives doing the same things anymore?
So, SCP starts looking at how they can operate more efficiently after the merger. They get rid of their separate leased spaces and opt for a single office, with a single telephone contract, etc. Plus, they don’t need two creative directors following the merger. So they’ll need to pick either Don Draper or Ted Chaough and let the other one go. Simple, right. Well maybe not…
Long-gone are the days where there was a non-descript business that generically manufactured widgets and sold them at the lowest cost possible. In the modern world, businesses are largely built on a series of relationships, both internal and external. These very relationships are often the foundation of the “goodwill” that the buyer seeks to acquire.
But how do you transition a relationship? As Roger Sterling wisely said: “Half the time, this business comes down to, ‘I don’t like that guy.’”
In many cases, the only way to transition the relationship is to maintain the people who have that relationship. So maybe SCP doesn’t need two creative directors. But they need the relationships that both Don and Ted have. So instead of canning one of them, they decide to keep both. Problem solved? Maybe, but what effect does that have on the thesis for doing the deal, as well as the post-closing culture of SCP? Good question.
Culture + People Strategy
Here’s where many post-closing integration plans either sink or swim. Companies are made up of people. And those people together create and maintain the culture of that organization.
Every business is different, and those differences are reflected in their cultures. Some cultures mesh well with relatively little effort; other times, these different cultures are like oil and water. Both sides must spend significant time on the front-end understanding the cultural differences between the two organizations and developing a plan for putting them together successfully. And sometimes, it’s simply not possible to put two cultures together successfully, no matter how hard you try. A little harsh? Maybe, but it’s better to find that out before the deal is done.
SCDP’s laid-back culture meant that Don could disappear for days on end with impunity, so long as the end result worked out. CGC’s culture was very different, and they were thus infuriated when Don went MIA. What gives when the two firms merge?
And, of course, there are the meaningful—and sometimes emotional—differences in how each of the organizations treats their teams. If the team performing substantially the same functions at one of the firms is compensated differently than their soon-to-be colleagues, what does that do for morale? Word of these differences invariably leaks, and anger and resentment ensue. And if you take away the “perks” that were enjoyed by the first team in the name of equality, what happens then?
All of this is to say that a major focus of the integration effort is to ensure that the teams who are joining forces can actually work together and feel respected and treated fairly. This usually requires adjustments, some of which may be perceived as positive by the team, but others may be much more difficult. Not only do you need to determine the right plan to implement these changes, you need to…
Communicate, Then Communicate Some More
As a journalism major, I was well-trained in the importance of effective communication. In the world of post-closing integration, a well thought out and effective communication strategy is not merely important…it is absolutely essential.
When SCDP and CGC merged, Don’s and Ted’s immediate focus was on the external message—letting their clients and all of the world know about the deal and the great things it will do for current and future clients of SCP. And that external focus is undoubtedly important and a major part of keeping intact those relationships we talked about before.
But the internal communications plan is as important—if not more so—than the external communications plan. Everyone needs to understand what’s happening, how it actually affects them, and what the combined organization will look like tomorrow. They also need to hear from you specifically that all of the scary things they think could happen, aren’t actually happening. And don’t believe that people aren’t conjuring up these nightmare scenarios in their head—and spreading them around to their colleagues—just because you’re not hearing those concerns voiced.
Everyone on the team has a part to play in ensuring a successful integration and creating the platform for future growth. Letting people know what their roles are and how they can contribute will be critical to success.
Change can be scary. But a detailed, properly-sequenced, and thoughtful plan, if properly communicated, can not only overcome some of the inherent objections to change, it can actually build excitement and commitment from the team.
Remember that your internal stakeholders are your ambassadors into the world. No amount of well-written news releases or slick marketing campaigns can overcome the damage done by one team member spouting off about what a disaster the deal has been.
Easy enough, right? Not at all. It’s hard work and requires constant attention from an interdisciplinary team. But don’t even bother doing a deal if you’re not willing to invest the time, effort and expense to ensure that the deal is successful.
While I hope these articles are helpful to the reader, this particular one doesn’t even try to scratch the surface of how to create and implement a post-closing integration strategy. The best way to tackle this topic is to talk to people who have “been there and done that.” Find out what worked and what didn’t. Oftentimes, the best lessons are learned from deals that didn’t work out as planned. Both veteran deal-makers and their professional advisors have loads of wisdom to share.
By all means, still go ahead and do all of that sophisticated financial analysis and detailed due diligence. Just make sure that you and your team remain constantly focused on making the deal work post-closing, beginning with the earliest stages of the process. Keep your antenna up throughout preliminary discussions and due diligence to look for clues about cultural and people issues. Think practically about how to capture and retain the value you’re trying to acquire once the dust settles and the post-closing reality sets in. And make sure that you’ve got the right team together to help make sure that Day One is a smashing success, rather than a painful run-in with a riding lawn mower.
Next Month: The People in Your (Dealmakers) Neighborhood: Part 1
Read last month’s piece: Adjustment Disputes