M&A Buyer: Integration of Service Companies

Some acquiring companies become overly zealous in their efforts to integrate target companies.  They may launch into poorly planned tactics without an overall integration strategy, and give little thought about the implications on the employees of the company acquired.  Have they forgotten that the acquired assets leave the building every evening?

What if on a Monday at 6 PM, you received an ‘all employees’ email from your CEO that your Company has been acquired … at 6:30, you receive a welcome note from the CEO of the acquiring company … Tuesday, 11 AM you receive an email from an unknown person at the new company stating that you will transition to the new company immediately … it is essential that you sign the attached contract by Friday at 5 PM … receive voice mails on Tuesday and Wednesday confirming that you must sign the contract by Friday at 5 PM … on Thursday at noon, a completely new and more restrictive employment contract is sent to ‘all employees’ to be signed by Friday at 5 PM… Thursday mid-day, another voice-mail requesting that the contract be signed by Friday at 5 PM … Thursday afternoon, your Company CEO schedules an all employee teleconference Friday at noon to discuss compensation…  

Oh, so many unanswered questions!  What happens if an employee doesn’t sign the contract by Friday at 5 PM? There are no documents (except two different employment contracts to be signed within days) that describe the transaction or integration objectives. 

…Unfortunately some executives may not appreciate the M&A implications on the employees – the assets purchased.  Perhaps this is an extraordinary sale under duress? Other than such a critical event, the acquirer is moving far too quickly, and may lose some of the key assets supposedly acquired.  Several questions that may improve the success of the transaction:

  • Why has the CEO not assembled a core of trusted employees in the target company to educate affected employees?  Soften the impact of the accelerated transaction by building on a solid foundation of known personnel.
  • Organization structure – fit within the new parent company… relocations, offices consolidated, closed?  Organization responsibilities?
  • Operating governance has not yet been defined… rather, the directive is that everyone will be an employee of the new Company immediately.  
  • Are there different levels of employees?  There apparently is no strategy for either the integration or effective communication with the potentially different employee levels within the organization.  Secretaries… to mid-level executives get these “all employees” missives.
  • What are the implications of the acquisition on all constituents?  Employee’s vacations, health and welfare benefits, retirement plans, 401-k, education, training…. Vendor contracts?  Customers?  Retirees?  Part-time or contract workers?
  • Has compensation been thoroughly and properly explained, documented with Human Resource experts available for discussion.
  • What will be different on Monday?  Some people will be employees of the new company, and some will – apparently - not be employees.  Then what?

What should be done?

  • Define an integration strategy.
  • Assemble a team of trusted executives and employees that can both sensitize the tactics to the real world, and effectively roll out the integration process.
  • Develop a tactical implementation plan… review the plan with a cross-section of employees.
  • Document the operational and transitional aspects of the integration – compensation, governance, responsibilities and meaningful timelines.
  • Establish two-way communications (in-person, teleconference, web pages, blogs etc.) to educate the employees, and understand their concerns.
  • Be flexible tactically to respond to major issues, while accomplishing the strategic objective.

Service business acquisitions are particularly difficult because the assets leave the building every evening.  If you pay $100 million for a service business, which includes 1,000 service personnel, on average you paid $100,000 for each employee.  If the asset leaves the employment, you lost $100,000 of your investment. Employees are more mobile than buildings, machinery and equipment, so carefully plan and execute any service business M&A activity. 

Copyright CFO Insight LLC. All rights reserved.