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How Managing Mergers is Like Dating

13/12/2016


MNP's TAKE: Mergers between companies are often the most effective means to grow a business, particularly during downturns. Ensuring the resulting company thrives post-merger requires more than shareholder approval. The successful integration of the companies – from personnel, cultural and technical standpoints – is key, and requires thorough due diligence. Issues such as weighing the costs of integrating vs. running parallel operating systems are as important as ensuring diplomatic change management to keep the transition smooth over the long term.

For more information on how MNP can help, contact Kevin George, Business Advisor, Public & Private Companies, at 780.451.4406 or kevin.george@mnp.ca


BY CHRIS ATCHISON FROM THE GLOBE AND MAIL

Listening and respect go a long way toward avoiding a failed corporate marriage

For many business leaders a business merger is a technical affair. It’s one that requires close scrutiny of balance sheets, an assessment of potential competitive gains and the benefits of taking on another company’s staff.

For Canadian steel tube and pipe manufacturing magnate Barry Zekelman, the process is all that, and something more. The CEO of Chicago-based Zekelman Industries Inc. compares it to dating.

“You have to do it properly, you don’t want to offend your date and you eventually want to marry them and have a happy marriage,” explains Mr. Zekelman. “It comes from both of you realizing what each other can provide.”

Mergers have been a boon for Zekelman Industries, which was combined with Atlas Tube, the Zekelman family’s Harrow, Ont.based company, in 2006. The latter business came under the management of Mr. Zekelman and his two brothers on their father’s death in 1986. After several acquisitions, Zekelman Industries is now a $2.5-billion business that employs more than 2,000 people, according to the company.

Mr. Zekelman points to the acquisition of a division of his largest competitor, Tennesseebased Copperweld in 2005, as the purchase that made him understand just how complex the merger process can be. It was also the one that tested his leadership mettle like never before.

“We worked on that for a year and a half and that was very complicated because there were three parties at play. We had to handle the tax implications of splitting up cross-border assets, then we had to deal with the selling entity and get all three of the parties’ best wishes across. It was a bit like herding cats.

“In doing that you really learn the importance of listening, of culture, of trying to saw your way through the more important details, rather than the smaller ones, so you can concentrate on what’s really going to make or break you.”

Indeed, merging two organizations is one of the most challenging tasks that a business leader can undertake. It’s a process that requires skills at negotiation, business analysis, risk assessment and keen instincts to determine whether an acquisition target’s management and employee culture can successfully merge with that of its buyer.

“It’s really about trust, respect and delivering on what you said you’d deliver on,” Curtis Cusinato, a partner at Toronto-based corporate law firm Stikeman Elliott LLP, says of the typically complex merger process.

Challenges aside, growth-hungry Canadian executives have been highly active on the M&A front of late. Take the recent merger agreement of Potash Corp. of Saskatchewan Inc. and Agrium Inc., as one example, or the raft of recent takeovers of foreign companies such as Enbridge Inc.’s $37-billion deal to acquire Houston-based Spectra Energy Corp., or St. John’s-based Fortis Inc.’s $11.3-billion move to buy U.S. transmission utility ITC Holdings Corp.

Bloomberg data show that Canadian companies purchased $205-billion in foreign assets last year, an eight-year high and an increase of 34 per cent from 2014.

This global buying spree has been going on for more than a decade. Canadian companies purchased 4,787 foreign-owned businesses between 2004 and 2013, according to Toronto’s M&A International Inc., compared to the acquisition of 3,544 Canadian companies by overseas buyers during the same period.

“The predictions of the hollowing out of corporate Canada may have been premature,” says Mr. Cusinato. “[Canadian companies] are seeking growth opportunities in other markets.”

He notes that the most successful of those acquisition-minded companies have leaders who not only have a masterful understanding of their own organizations, but also the operations of their competitors. They focus on leveraging in-depth business intelligence to highlight potential acquisition targets, then analyze key metrics to determine if the benefits and timing of the purchase make sense.

“Some of these business leaders can simply walk into a facility and say, ‘No, I’m out [of the deal],’ or ‘Wow, there’s an opportunity here,’ because they understand their businesses at that depth and detail,” Mr. Cusinato says.

But knowing what to buy is only the first step. Managing the due diligence and negotiation process can take years, and requires extreme patience and a diplomat’s touch to stroke outsized executive egos or help entrepreneurs manage the often emotional process of selling their business.

“Keeping up a good rapport is never to be underestimated because there are things that occur during due diligence that might cause a buyer heartburn,” says Robert Yalden, a partner and M&A specialist with Osler, Hoskin and Harcourt LLP in Toronto.

“If you have a team leading the transaction that has a strong rapport with the leadership of the target being acquired, that is extremely important to how the negotiation plays out and how it works afterward.”

Approaching an acquisition as equals, despite the fact that the acquiring company may be much larger than its target, is always a preferred approach, he says. So, too, is taking the time to research the personalities and backgrounds of those at the bargaining table.

Still, a degree of sensitivity and camaraderie doesn’t negate the need for frank discussions around acceptable purchase terms, as well as potential problems with the business that may need to be addressed.

No matter the substance of the discussions, Mr. Yalden underscores the need for all parties to keep their emotions in check and allow time to reflect and digest each other’s arguments, concerns and eventual offer terms.

Once a deal is struck, Mr. Zekelman says the key to his past

CULTURE CONTINUITY

Zekelman Industries Inc. became a multibillion-dollar steel tube and pipe manufacturing empire on the success of several mergers. Key to that success was the integration of business cultures. CEO Barry Zekelman shares three strategies for managing and motivating staff during and after a business merger: .

Make them feel at home Mr. Zekelman’s transition teams have focused on crosstraining acquired staff, and bringing them into their buyer’s work environment to learn new systems and get a sense of that culture. “You don’t want to make it feel like you’ve just raided their home and are stealing everything.”

Give them a voice “You need to give [acquired employees] a role in decision making to keep them engaged,” he says. Rather than dictating orders from a centralized head office, Mr. Zekelman encourages merged employees to provide input on potential innovations and efficiencies, while making managers visible to help smooth the transition.

Communicate The early days after a merger are critical to communicating expectations, meeting new employees and making sure they understand that management is both available and receptive to their questions or concerns merger successes has been acting fast to take advantage of the various synergies created when two complementary companies join forces.

“I believe that if you haven’t gotten into the bulk of these synergies within the first 90 days, you’re not going to get them,” he says.

That means taking opportunities to free up working capital, finding operational or production efficiencies, promoting or repositioning top employees – and possibly parting ways with those unwilling or unable to adapt to their new work environment.

Having an experienced transition team ready to execute that plan is crucial, he says, especially because finding and capitalizing on those various synergies can be a “very painful” process.

At that point, retaining and even strengthening the very best aspects of both organizations’ cultures should be a top priority, according to Mr. Yalden.

“I’ve seen deals go very badly, not because the business itself wasn’t a good one, but because the people coming over with it couldn’t adapt to what’s being asked of them. Then, if you lose people with the institutional knowledge of what you’re acquiring, that can be a problem.”

The very best leaders, he says, are the ones who have the skills to help people cope with change during a merger – keeping them as productive and engaged as possible – then supporting their success when the dust has settled.

Mr. Zekelman would agree. He calls managing people the single toughest thing a business leader can do, but also one of the most important in the months and years after a merger.

“One of the greatest assets of an acquisition is the people, it’s not just the physical assets,” he adds. “They have value, merit and good people are very hard to find. It takes a strong leader to acknowledge that and manage people so they buy into [the merged company].”

THE SERIES

A look at what skills future business leaders need to have to tackle the challenges of an ever-shifting marketplace.

 

This article was written by Chris Atchison from The Globe And Mail and was legally licensed through the NewsCred publisher network.