Clean teams for mergers
As difficult as the bargaining for acquisitions can be, the work only is beginning when the final deal is signed off on. Managing the integration of one firm into another is a difficult art, and, even botched, and it often is, can quickly drain all the supposed benefits of the deal.
A Financial Times article ("Clean teams banish acquisition uncertainty", 8/8/06) discusses an increasingly favored approach to integrating two disparate companies. It is designed to ease some of the stress on management that is split between continuing operations as before while supervising an added level financial, cultural, and operational issues.
As the article presents it:
One way of alleviating the problem is a "clean team", a group isolated from the operational management of both companies, usually consisting of 10 or 20 people drawn from inside and outside the companies. Clean teams collect and analyse data from both parties, which it uses to plan how the merger will work - and crucially, where the synergies and cost savings will occur.
Such a team starts it work well in advance of the completed deal, setting out a strategy for realizing the claimed "synergies." There is usually a key period (ranging from six months to a year for longer) between when the deal gets accepted and the regulators give the deal their blessing. While no actual merging of operations can happen in that period, there is time for in-depth planning that does not get mixed in with the ongoing operations of both firms. Most critical is planning the integration of accounting and IT functions, often the biggest headache for any acquisition. Fumbling around with these operations only after the takeover can be a disaster.
Another area stressed in the article is so-called "cultural due diligence", something that should be done along side of the usual financial due diligence. One of the key issues is holding on to key managers in the acquired company, reassuring those who might otherwise be looking for an exit route in the assumption that they might be laid off after the deal closed.
Such teams were used in the initial combination of three firms that formed Arcelor in 2001. It was used by Hewlett-Packard in its acquisition of Compaq in 2002. Cadbury Schweppes followed suit in its buyout of Adams Gum in 2003 from Pfizer. Because of the big expense, the approach is mainly used by big firms for big (billion dollar plus) deals.
