Monday, December 10, 2001

Guest Commentary: Five rules to follow for success in high-tech acquisitions

By David Wolf

With growth prospects slowing and venture backers abandoning promising companies, we are seeing more and more acquisition activity with high-tech firms.

Researchers say that as many as 80 percent of acquisitions fail as customers, management and momentum disappear, along with the planned cost savings and earnings growth.

One problem we see is that not enough attention is paid to the issues of post-acquisition integration. Here are five valuable rules that can help you beat the odds and successfully complete acquisitions:

•Begin integration planning before the deal is closed. Many companies treat acquisition integration as a separate and discrete phase of the deal, usually kicked off at the closing. Companies instead should view integration as a process that begins with due diligence.

When you get the integration team involved early in the process, key financial assumptions can be verified against the operational realities, and you can avoid costly surprises. Another area in which early integration planning can head off future problems is in defining and communicating what the acquirer views as non-negotiable elements of the integration.

•Establish an integration team with clearly defined roles and responsibilities. The head of the integrated business unit should lead the integration team. Some people advocate making the integration team leader a member of the acquired company's management team, but unless that person has been tapped to run the business unit, it rarely makes sense. The integration team leader has to be the person who is ultimately responsible for making the new business work, not just completing a smooth integration.

As the team leader is unlikely to work the integration full-time, it is critical that he or she be supported by an integration manager who has a complete set of project management tools, checklists and systems and is experienced in the subtleties of successful acquisitions.

The working members of the integration team should consist of people drawn from the appropriate functional areas of both companies. Teams should develop detailed written integration plans that clearly articulate integration objectives, the specific plans to accomplish those objectives, and relevant time frames and costs. The integration manager will bring the plans together into a cohesive whole and highlight conflicts, dependencies and any areas that do not support the overall objectives of the integration.

•Develop clear strategic and financial objectives for the acquisition and measure against them. Publishing clear strategic objectives and financial targets for the acquisition is critical to the success of the integration. An acquisition motivated by the cost savings resulting from consolidating redundant operations will have a very different integration plan than one that is expected to yield significant revenue growth by entering new markets.

•Do not underestimate the impact of cultural differences. While corporate culture is an amorphous concept, it cannot be ignored. Retaining, supporting, engaging and ultimately fully integrating staff into the acquired company's culture is essential to achieving the business objectives of the acquisition. We have seen a higher probability of success in integrations where the acquired company's culture is objectively assessed and treated with sensitivity and elements of that culture are preserved.

•Make, announce and implement tough decisions quickly. Every merger or acquisition involves a series of tough decisions. Management roles must be defined, reporting structures must be solidified and restructurings, often involving layoffs, must be implemented.

Any delay in announcing these decisions will have a profound impact not only on the people directly involved but on the entire organization. These decisions, once announced, must be implemented quickly, ideally within days of announcement. When the company has begun the integration process during due diligence, it is in a position to announce and implement personnel changes as early as the day of the closing.

David Wolf is a managing director of The Mercator Group, a Boston-based management consulting firm that offers a range of business advisory services to emerging and middle market technology companies.