Competitive

By Donald Shay

Best Practices: Postmerger Integration

directly competitive, we can integrate more quickly and easily, minimizing the debate about dominant systems or cultures." This strategy appears to have been successful. Anteon has made eight acquisitions in the last eight years, growing more than twelvefold. Interestingly, the majority of that growth has been organic in nature. As Dawson points out, "only 40 percent of that growth is directly attributable to acquisition revenue. The other 60 percent comes from the acceleration of internal growth stimulated by acquisition synergy." Commit to Communicate. The announcement of an acquisition creates uncertainty for employees and customers. This leads to lost productivity, disruption, and revenue erosion. Eorly, frequent, and responsive communication with key stakeholders is critical to allaying fears and dispelling rumors. Develop feedback mechanisms to engage employee and customer concerns to ensure that your messages are on point and responsive. Use multiple approaches such as e-rnails, town hall meetings, mailings to the home, and frequent newsletters to reinforce your message. Anteon's Dawson says, "Communication is the most important thing we can do. We can't over-communicate. We have our communications strategy in place before the deal is signed. Within hours of the first press release we are actively engaged in communications with our own and their employees and customers, and the community. Within three weeks of the announcement we have linked our e-rnail systems and provided access to public Web pages." Uncertainty breeds rumors, and rumors are almost always negative. Get your messages our early and often, and make sure that opportunities for dialogue are abundant. Treat Integration as MissionCritical. Integration is too important to treat as a spare-time activity. With the amount of shareholder capital involved, management needs to be fully committed by adopting a disciplined approach to integration, staffed with the right people who also have access to top management. Herb Anderson, recently retired from his position as CEO ofNGIT, credits much of the group's success at integration to this approach: "We treat integration as a major program. This means we have dedicated people, a structured process, project plans, periodic reviews with top management and the

Acquisitions

can be a crucial element in a

firm's gr'OlJJthstrategy. But as discussed in

Part I last month, postme'l,er or acquisition integration can be difficult. More iften than not, it remits in erosion of shareholder uah.
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do stlccessfttl acquirers inaease

the odds of adding shareholder value?

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void Trouble: Acquirers can mitigate acquisition perils by focusing on targets that minimize integration risk. Some firm's, such as DynCorp, followed a strategy of "buy and hold," minimizing the likelihood of turmoil by avoiding integration altogether. While such a strategy minimizes disruption, there is little opportunity for the acquiring firm to extract incremental eorning< from the oC'l"isitinn that are sufficient to offset any premium paid, and no long-term strategic advantage is created. Another approach is to avoid integration difficulties by buying firms that are both smaller and complementary. Firms that are not direct competitors are less likely to introduce troublesome cultural issues due to historic rivalries. Smaller firms, with less history and employee investment in established practices, may be more likely to embrace the acquiring firm's methods and processes. Northrop Grumman Information Technology GIT) and Anteon have adopted this approach, coupling an acquisition strategy targeted at complimentary businesses with a strong bias toward integration. Anteon's Pat Dawson, senior vice president of administration, describes the firm's philosophy: "We seek acquisitions that support our organic growth by expanding our tech-nical capabilities and! or our customer base ... By filling gaps with businesses that are not

active involvement of the CEO."

They also follow up. During the first two or three months, NGIT tracks transition progress weekly, then monthly, to make sure that transition Blans are meeting objectives in a timely fashion, and if not, Ithat resources are committed to get the program back on track. Don't Lose Sight of Your Priorities. While deals are done to create value, other mundane activities that don't produce value may crowd out the pivotal ones. Mundane tasks include changing sign age and bank accounts. These tasks, though necessary, are not why acquisitions are made. Rather, management should focus on the relatively small number of initiatives that can produce meaningful increases in revenue or reductions in cost in the immediate future. In practice this means clear agreement on those initiatives that will produce the most value, the creation of transition teams from both firms to plan and execute those initiatives, and timely senior management reviews to track results. These measures keep management's ,attention on the real reasons the . deal was done, such as cross-

OCTOBER 2004

Volume 10
l) Prof.;:;iona i S.;r.ic<S b.p(, Training. Oppertu nit! P7

)) Po)iici arid Regs: Elseticn 2004-Ch ok",. for GQ,<tmrn<nt Ser.i ("S FirmsP8

*Don Shay Is a Senior Consultant withy SlloSmashers, Ine. Previously he was a Partner with PwC where he ran their Washington, DC merger integration group.

October 2004

2004 Panda Publishing, LLC.

Competitive

Best Practices:

Postmerger

Integration

continued from P1

How Northrop Grumman IT Integrates AcqulsftJons

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Integration should be about the creation of new value based on the pooling of competencies rom each firm. Need for Speed. Anteon's Dawson notes, "Unlike a fine wine, acquisitions don't improve with age. Speed is imperative." In practice this means early and frequent communication, rapid decisions on the new structure and management team, and quick formation of transition teams. Anticipation and early preparation are key. An example is Anteon's communications approach, noted above. Immediately after the public announcement, communications are sent out to all key stakeholders, and visits to key sites and customers are scheduled. At NGIT, the high-level organizational structure is determined within the first week of closing; senior managers are identified within the first 30 days. Within 130 days, the detailed organiza-tional structure, including the selection of managers, is in place. Speed of execution reduces the opportunity for uncertainty, sends a message that management is committed to the integration, and accelerates the time frame for achieving the deal's objectives.

01T has an enviable track record. .....ill POStnl":']">3H [Luegration. Fc.r

tho? last ~~ars. NCIT has maintained a double-digit organic gro . rat", .th
... integnujng hile seven acquisitions,
ill

Embr:;u:-E'cb<tngl? and PUt chose !,.,h.:)embrace change ill pos;itiom 0;. autb rit:y
Treat ini".o:gnnic'D ill! the crearlou of a new C;)fipallY. ~ith. anew culture, as o;.,cl.Iasnew capabilines and oppor ruuities forboth a.:qujrej and acquirer, the

and gr.::1ning from $~O:million f'c'lE'LlUc to over .$4 billion bday'.

AccordiLlg to Herb Anderson. the k",,:i'$ to su (Cess are Have a StTU' rured proce~~.. bur apply it flextblv, IlltegrS!e immediately. beginning with Like functions, and then focus ou business devekprni!m. Adopt best practices and seJ.ect
people wichin the first 30 d,l~

Handle integration as a pmgTi:un, '. a small number of dedicated rirh

people. prc1ect plans, and with

ar COUlU;;J bili ty. Caprure and institutionalize ;,-'our imt:grarkill experience. make Incremental improvements on lessons learned. based

after do ae. Encourage opell considerauou of "best practices" to:i tnanagern. bur end, debate and make decisions in that fjr~t mourh.
selling capabilities to one another's client base. Make Acquisition's Management tegral Part of the Process. an In-

Stay focused on the customer. US<:' a dedicated transition ream to enable line managers to spend the majori~; of their time Soef11ing customers.

****
Acquisition integration, even in the best of circumstances, is disruptive and demanding. While the practices described are not exhaustive, their adoption can improve the odds of success. Regardless, developing competence in integration is a critical step to institu-tionalizing an organizational capability for change. Firms, such as NGIT and Anteon, that have become proficient at merger integration, are better able to adapt to the ever-evolving competitive landscape of the government services marketplace, and more likely to reap the rewards of this agility..

While due diligence provides a starting point for assessing potential deal synergies, it offers only a one-way perspective that is based on limited access to the target's staff. It is not unusual for a firm to find that many of these supposed synergies are ephemeral, while other real opportunities were initially unidentified. Once the deal is closed it is critical that managers from both firms be assigned to review first-cut assessments of deal synergies and reassess

the nature and magnitude of these opportunities. Involving the acquisition's managers this way will not only provide more insight, their involvement will also focus their energies on creating the new company, rather than pining for the old. Focus on the Future. Herb Anderson illustrated NGIT's emphasis on the future by noting that "every time we made an acquisition we created a new company. We focused our collective energies on understanding the future market and then creating a new company with each acquisition. We embraced change and sought managers with that capability."

2 GOVERNMENT SERVICES INSIDER

October 2004

I 2004

Panda Publishing. LLC.