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Corporate Integration: Keys to Success

Stage-by-stage advice from an M&A veteran.

Fortnightly Magazine - October 2006

frequently and effectively. This will help in the short term and even more when a restructuring hits.

Transition

The transition stage begins when an acquirer identifies a target to acquire (or a potential partner finds a potential match). Although many have traditionally thought of integration as an activity that begins after closing a deal, the specific planning and actions for a successful integration should start as soon as the target is identified. Execution of the integration plan also should begin during the transition stage, not after closing.

Just Say “No”

Early on, establish the purpose of the acquisition or merger. Specify, in black and white, the value proposition, and refer to this statement often. During the transition struggle, there will be times when emotions or egos will rise in influence and may push to move a deal forward when there no longer is a value-adding opportunity. Providing safeguards to avoid overpaying or “winning” at any cost is a sound investment at this stage. Many an experienced M&A veteran has said the best decisions they made were decisions to say “no” to potential deals.

Remember, money and time already spent are sunk costs. Focus on going-forward costs and remaining potential gains.

Get to Know One Another

Once contact between the companies begins, it is important to gather insights on culture along with the standard finance, accounting, legal, compliance, technical, and environmental due diligence. Make certain that you have a few candidates in mind for the role of integration manager at this stage, and have each candidate participate in some aspect of due diligence or other information gathering. Having feedback from preliminary negotiations is particularly useful; make certain staff with high “emotional intelligence” are involved and that they report back frequently on how negotiations are going.

The public domain contains plenty of information about company leaders. As you determine a target, or an acquirer, gather this information to identify points of common interest, and disseminate this among senior management. A meeting to review this material can help to assemble a better sense of the “other” team, and can reduce tensions during visits between the firms involved in an acquisition.

Other important tasks at this stage include management of relationships with customers and suppliers at both entities, and addressing relevant regulatory issues (federal, state, or international). All these stakeholders have concerns, and you ignore their issues at your own peril. Prepare to get out to them as quickly as possible with a coherent story and useful, consistent facts.

Another critically important consideration is to make certain that communications do not violate Federal Energy Regulatory Commission (FERC) standards of conduct or related regulations. Information regarding jurisdictional transmission (power or natural gas) cannot be shared with affiliates or potential future affiliates in any unduly preferential way. Assessing such potential requires an understanding of the limits imposed by FERC regulations, in particular. Those unfamiliar with the restrictions may plan on value-adding deals and processes that may not be legal in the FERC-jurisdictional world. (This important topic could be an article in itself.)

Management should identify the integration manager