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M&A Buyer: Executive Summary & Critical Success Factors

Critical Success Factors (CSF) are those few deliverables that make a project successful.  When a company is acquired, there are numerous goals associated with the acquisition, ideally established for all functions, at various levels throughout both organizations.  The “Critical Success Factors” are those few deliverables that, if not accomplished, will label the acquisition a failure. The Critical Success Factors will vary with each acquisition, and can include everything from key personnel retention, to achieving specific sales or profit levels, to market share increases.

CSF’s are determined at the highest levels, measurable, with specific executive accountabilities, systematically communicated to the merged organizations.  The transition organization will clearly understand the critical success factors, and frequently measure and report progress toward the goals.  There are likely to be 5 or fewer critical success factors.  Let’s review an example…

Company A, a $1 billion European conglomerate acquired the US operations of Company B, owned by a private equity organization. The US organization’s last year’s revenue totaled $100 million.  The strategic goal is to establish a geographic foothold in the US, specifically to expand distribution of the European parent Company consumer products, and also transfer technology and manufacturing process from the US to the new European parent Company.  The US Company has a patented process for the high-speed manufacture of a unique environmentally friendly aerosol, which would be used in all the European Company’s consumer products.  The new parent planned for technology transfer and full production of the European products using the new process within 12 months.  Total cost for the tech transfer, and machinery upgrade will be $2 million.  The combined financial statements would be additive, with a synergistic sales increase due to the European product launch in the US of $10 million in the first year.  Company B’s VP Marketing, VP Manufacturing, and VP Research & Development are key employees.  Each of these executives received walk-away money through stock option exercise, and business sale bonuses.

The US Company CFO committed to fully integrated financial reporting, budgeting, and data systems within 12 months. The US VP of Human Resources committed to fully integrated HR systems and policies within 12 months.  This integration would reduce headcount by 50 people in the US, and reduce total overhead in the combined company by $1 million.

The President of the Consumer Products Division of the European Parent is the Executive Sponsor responsible for the transaction. 

What if?

o   The VP of R&D at the US Company decides to retire – the walk-away money just too good to pass up - but has a well-qualified successor in place within 6 months?

  • The Tech transfer to full production in Europe requires an additional $1 million of investment to be in full production within 12 months?  Or spend to the original $2 million estimate, and have tech transfer complete in 30 months?
  • There is a localized 2-day strike in the French manufacturing plant because headcount reductions are expected when production of select products is transferred to US, and the new manufacturing process is adapted in the French factory. 
  • The CFO is unable to achieve full integration of finance/data systems for 2 years?  The CFO resigns 4 months after the acquisition is completed?
  • Due to unanticipated European regulation, the European HQ was unable to dedicate any time to consolidating HR policies/procedures for 12 months.
  • The VP Marketing (US), successfully introduces (local production, launched all products to all key customers through established distribution channels, sales training completed, national advertising/promotion plan in place…) all 12 European products, but due to a recession, achieves only $9 million of sales?

Will the executive sponsor keep his job?

There are many variables to consider, and many points of possible failure.  The key to success is to focus on the Critical Success Factors, and communicate with the constituents.