JPMorgan Chase’s recent acquisition of Bear Stearns has put the question of effective integration in the spotlight. Given that further industry consolidation is inevitable, due not only to the need for additional capital, but also because the credit crunch has cut the valuation of many financial-services institutions, it’s now an opportune time to revisit the guidelines for a smooth integration.
1) Do no harm. Extra care needs to be paid to the “tone” of conversations, communications and actions. There have been instances, where, in the period immediately following a transaction announcement, management teams have made rash statements, displayed aggression and given in to empire-building or protectionist tendencies. Negative impressions can take significant effort to erase in the future. Remember, regardless of deal structure, this is essentially a marriage and both partners have to work at making it successful.
2) Detail the synergies in the pre-acquisition due diligence. Too many times the pre-deal “dance” tends to focus on the big-picture positives of the transaction. The due-diligence phase is the time to identify cost synergies in detail and stress-test them through scenarios so that published synergies are, in fact, achievable in the long term. Also, attention must be paid to the so-called “negative” synergies, where problems at the acquirer and acquiree can add up to bigger problems for the new entity.
3) Detail and articulate early. Following the announcement of the transaction, senior management needs to lay out a detailed and clear articulation of the business strategy. This is the road map that drives everything forward—it alleviates ambiguity, harnesses employees to a common goal, drives communications internally and externally, and enables the selection of an equipped leadership team.
4) Select leaders and empower them early. Integrating two companies can be daunting and from the outset requires strong, empowered leadership to lead. Too often, the naming of these leaders is hampered by political maneuvering, acts of self preservation and instances of “short-term-itis”, where leaders are named for short-term expediency and are not empowered to make long-term decisions.
5) Don’t try and change the world before the “change of control.” The period between the announcement of a transaction and the formal “change of control” paperwork is often a blur of activity. It is important, however, to focus on planning and executing the key tasks required for a successful COC and in planning for post-COC optimization of the entity’s integrated operating model.
6) Understand that clients make the world go ’round. Focusing on tiered client communication early and paying close attention to client focus, service and relationship management up to and following COC is critical to retaining and expanding client relationships.
7) Pay attention to cultural differences. Corporate cultures are hard-to-define, nebulous concepts, but they drive people’s behaviors. Management should be aware that ignoring cultural sensitivity can lead to “culture shock” that drives confusion; then, frustration; and, finally, resistance to change. The effects of these can linger long after the companies have been integrated.
8) Communicate, communicate, communicate. Given the speed of change during a typical integration, it is not uncommon for an information vacuum to develop. Couple this with the increased need for information from employees who are concerned about their place in the new organization—and frequently you have real information being replaced by the rumor mill.
9) Fight the urge to “take over” and not “integrate.” There is more to an acquisition than a joining of revenue streams and client relationships and operational-cost synergies. When an “integration” mindset is employed, as opposed to that of a “takeover” mindset, decisions are made to truly optimize the future operating model.
10) Know that the devil is in the details and dependencies. Integration involves planning and executing on a multitude of decisions in a highly volatile environment. To succeed, organizations need to create a project-management approach that is driven by discipline, consistency, focus and is staffed appropriately.
Statistics show mergers or acquisitions are executed successfully less than 50 percent of the time. Bearing the above lessons in mind may not guarantee success, but it should increase a bank’s chances considerably.