The time-honored discounted cash flow method for determining appropriate utility returns falls short when interest rates are low. Inadequate ROEs ultimately increase cost of capital and wipe away...
Corporate Integration: Keys to Success
Stage-by-stage advice from an M&A veteran.
target, as well.
The pre-deal stage should address management preparation, environmental scanning, and leadership of the workforce. With regard to management preparation, managers can develop enhanced skills for addressing corporate change, thereby improving their comfort level with change. One particularly useful action is to conduct an offsite exercise for key executives to “experience” restructuring.
A Restructuring Experience
An active executive team could benefit from an encounter with restructuring at almost any time. The key is confidentiality: If your team has a tradition of honoring confidentiality, proceed as soon as possible.
The elements of this experience include:
• Setting the context for corporate restructuring;
• Sharing concerns and earlier experiences;
• Role playing; and
• Downtime discussions.
The context needs to be set in terms of the trends evident in relevant industries and an overview of the acquisition and integration processes. An outside expert can be helpful here. (Such a resource also may prove helpful in the background throughout the exercise).
A facilitated discussion among the executive participants constitutes another important element of this exercise. Most likely, some participants will have firsthand experience with a major corporate merger or acquisition. Sharing that experience with colleagues and then discussing the advantages and disadvantages of such transitions will mean much to the rest of the executive team.
Particular attention should be paid to the “lifers” who have devoted their entire careers to one company; they are likely to be particularly anxious. If the right lessons are drawn out of this sharing, all members of the team will begin to see that there is hope beyond the integration. This insight can provide an important foundation for each team member if struggles begin later.
The next important step is role-playing. The executive team should separate into groups of four to 10 people. Each team plays executive roles within either an acquiring entity or an acquired entity. Each team can address one or two cases, depending on time available and the size of the group.
The preparation involves creating four cases, two in which the organization acquires assets and two in which assets are acquired. Within the subsets, make one case a relatively attractive situation and one less so. In our case, we had targets we would have liked to absorb and we had organizations we admired; this made attractive cases rather easy to craft. The problematic cases require special attention; the CEO may want to fine-tune such cases.
The role-play process includes case preparation, summary case presentations, case assignments, case analysis by a team, team presentations of recommendations “to the board,” and follow-up discussions.
The role-playing helps get the worst fears front and center for all.
Senior management also needs to be scanning the industry environment. Trends, competitor analysis, and other M&A activity provide important insights to skilled observers.
In addition, management needs to lead. In general, the work force throughout the energy industry is anxious. If your company is “on the hunt” or “in play,”workers may be worried about their jobs. If they are not concerned about jobs, they are concerned about pensions. Managers must communicate