buying a business Archives

Integration – Communications Plan

November 4, 2020 by Sun Acquisitions

Why do so many post-merger integration plans struggle to be implemented? What can merger experts do to facilitate and streamline integration efforts? To answer this question we have to look at the communication plan.

Did you know that poor communication costs midsize to large corporations on average $62.4 million annually? Communication, as we all know, is at the heart of any business and it should be a top priority in a recently merged entity. A strong communications strategy sets the foundation for clear directives to flow from management and stakeholders to employees and customers. And the lack of such a structured plan will amount to nothing short of chaos.

A good communication plan precedes merger

Communication teams are present from the onset of a merger and acquisition deal. They are as it were the front-liners the moment conversation around business acquisition begins. They are the ones responsible for overseeing, developing, and managing the post-merger integration aspects.

The goal of such a team is to encourage business continuity and foster strong relationships between merged companies. It is the communication team that must filter the right information down to employees, vendors, regulators, and stakeholders. It is their task to keep morale up and ensure turnover is kept to a minimum. Theirs is a job that transcends and cuts across every department and unifies all parties.

To assist them in this overly important task, the communication team designs a plan that dictates their actions at every stage – before the M&A happens, during negotiations, and after the deal is signed.

How to draft an integrated communications plan

What are the steps to take when putting together an effective integration plan? There are five core elements that must be considered. However, because of the complex nature of mergers and acquisitions there is no “one-size-fits-all” approach to structuring these plans. Each communications team can tailor and adjust as they see fit.

1. Identify leading stakeholders

When companies merge there are many people that must be informed. They fall into two major categories: internal and external stakeholders. The way you communicate with each group will be different as each requires a particular tone that addresses their interests.

External stakeholders are generally investors and analysts who must be convinced of the associated benefits of the deal. Customers and vendors are another part of the external lot whose continued loyalty must be carefully courted.

Internally, we are looking at employees from the two businesses. Tensions will undoubtedly high as is common in such high profile transactions. When structuring a strategy around employees, it should include communication for workers unions and any legal documents you may require.

2. Identify hotbed issues and significant milestones

It is imperative that communication teams identify situations that can prove bothersome so adequate preparation can be made ahead of time. These issues may be severance packages, litigation cases from disgruntled employees, and or other third parties.

Concurrently, the major milestones also need to be anticipated so external and internal stakeholders can be informed correctly. Such milestones may include the announcement of new leadership structures and when the official Day 1 will be.

3. Establish governance systems for the communications team

The communications teams must be on top of things at all times. This requires sufficient resources in the form of both human capital and finances. Integration success rests upon good governance structures within the communications team.

More likely than not there will be three distinct roles within such teams: The integration leader, the integration steering committee, and the communications leader. All work together like a well-oiled machine ensuring that the communications plan is executed expertly.

4. Frame your core messages and how you will deliver them

Communications teams must carefully extract the main points to be transmitted to stakeholders from the meetings taking place behind closed doors. These key points or core messages will be the narrative that is pushed and will help keep everyone on the same page.

The message must be unifying, positive and reinforce the value to be had in coming together. It’s not hard to see that the communication plan is really pivotal in getting both internal and external stakeholders to understand what’s happening.

5. Develop open communication channels

Communication involves dialogue. The communication plan must take into consideration the feedback from employees and external parties. An open communication channel between the communications team and these entities is critical as their input can help consolidate and speed up integration. When people feel as though their opinions and values are being heard and addressed they are more likely to co-operate with post-merger integration efforts.

Considerations to factor in when building an integration communication plan

What are some of the things communications teams must be aware of when building their communications plan?

Develop the communication plan early: everyone waits on the communications team for information. Therefore make sure you start working on drafting clear strategies early on.

Leave no one behind: don’t overlook stakeholders no matter how insignificant in the deal they may be.

Promote harmony within the hierarchy: the objective of the communications plan is to unite parties not create division and disunity; watch your tone and language.

Don’t overlook culture: culture is often a neglected element during deal structuring. Be mindful of the different company cultures when delivering messages.

Broadcast clear directives: messages should be clear and concise and not leave people wondering what the message actually was.

Remember you’re talking to human beings: this is particularly important when you have to deliver unpleasant news such as layoffs and retrenchments.

Discuss your communications plan with qualified brokers

Would you like to go over your communications plan with a team of skilled qualified brokers? Sun Acquisitions is one of the leading business brokers in Chicago. Our advisory services include strategy development, divestitures, acquisitions, consultations, and business valuation. To discuss your communications plan don’t hesitate to reach out to us. Contact us to schedule a complimentary and confidential consultation with one of our certified advisors. Let’s discuss your business and review your goals.

Disclaimer: Any information provided in this blog is not intended to replace legal, financial, or taxation advice given by qualified professionals.

Integration – Culture Consideration

October 21, 2020 by Sun Acquisitions

How important exactly is company culture in M&A transactions? Well, according to a study by Isaac Dixon, “Culture Management and Mergers and Acquisitions”, cultural incompatibilities are the root cause of 30% of failed M&A integrations. Despite this research, many executives are dismissive of culture, an outlook that places the responsibility of managing potential culture clashes on operating leaders. Company culture differences have the ability to undermine even carefully crafted mergers and acquisitions. Case in point the $35 billion Omnicom and Publicis merger that fell through in 2014. Given the importance of culture, what measures can CIOs take to address culture integration?

Culture Consideration Tip #1 Appoint corporate culture leaders

The complex nature of mergers and acquisitions necessitates input from a wide range of professionals. There is an obvious need to bring on board experienced culture change leaders. People with the ability to unite distinct corporate cultures. Experts who will not allow culture clashes to get in the way of realizing economies of scale or erode the value of the transaction. These leaders will be instrumental in charting a new hierarchy and structuring the new organization model.

Culture Consideration Tip #2 Embed culture integration into meetings

Culture integration must begin at the top. Senior executives must make the first efforts to display a united front so employees can follow suit. Corporate culture leaders must identify culture owners from the merged entities who will take ownership of promoting culture at inhouse meetings. These culture owners will ensure that at every scheduled meeting there is a moment given to the presentation of the new culture. These presentations should be well-structured and specific and not vague assertions of the need for collaboration and teamwork.

Culture Consideration Tip #3 Compromise: find the middle ground

Integration should not mean the annihilation of the culture of the acquired entity, even in a takeover. The cultural strengths of the merged companies should first and foremost be recognized then draw lessons from each company culture. Find the middle ground of how cultural strengths may be integrated and expressed.

Examples of companies that managed to get this right and turn their transactions into successful mergers and acquisitions include Google and Android, H.J. Heinz and Kraft Food, AT&T and BellSouth, Verizon and Vodafone, Disney and Pixar with Marvel, and Travelers Group and Citicorp.

Culture Consideration Tip #4 Select key decision-makers

The ability of a recently merged entity to respond quickly and make decisions is often hampered by associated styles or cultures of decision making. Even prior to the merger, the way decisions are made can be telling signs. Take the aforementioned Omnicom and Publicis deal that never saw the light of day.

Omnicom CEO John Wren said at the time, “There are strong corporate cultures in both companies that delayed us reaching an agreement.” This was an understatement because those delays caused a loss in revenue exceeding $1.5 billion.

By selecting key decision-makers who represent the interests of both companies, decisions can be made faster. One can avoid the bureaucratic mill which almost always slows down decision making.

Culture Consideration Tip #5 Be mindful of succession planning

One of the biggest mistakes often made during M&A transactions is paying little attention to employees. This plays a major role in the high turnovers that are characteristic of such transactions. If you wish to retain top talent, accord them the respect they deserve. Remember, how you treat them during this transition will affect their loyalty going forward.

If you’re keen to better understand why employees leave, assistant teaching professor at PennState Smeal College of Business, Jeffrey A. Krug can help. He makes an effort to explain this mass exodus in his Harvard Business Review article, “Why Do They Keep Leaving?”

He argues that while the majority of original executives do leave voluntarily within a few months, a third of them are forced out and another third opt to leave because their job status has been reduced. The departure is not restricted to executives only with even new hires departing in droves. What could possibly be the cause? Krug cites the underlying problem as the failure to respect and retain incumbent leaders which indirectly leads to demoralization among the already nervous workforce.

Culture Consideration Tip #6 Adopt an open-door policy

During a merger and acquisition, the best thing you can do for your employees is for team leaders to keep an open door policy. When information trickles down as gossip instead of direct conversations between leaders and employees there can be a lot of misunderstanding. In an already tense situation, keeping employees in the dark might not be the best move.

Engage your people during the process. Ask their input on how best to create synergy. When you keep lines of communication open, people feel part of the process. They will still be nervous but it will afford them an opportunity to be heard and to ask the tough questions they might have. Purposeful dialogue may help alleviate anxieties across the board.

Culture Consideration Tip #7 Develop resources for easy reference

When organizations merge, structures will be rearranged and hierarchies affected. The old way of doing business is gone. Some of the culture clashes that present themselves at the onset involve employees continuing in their pre-merger practices. It is not enough to simply ask them to change. Documents must be prepared ahead of time that outline unique roles and responsibilities to avoid conflict.

Schedule a free and confidential consultation with Sun Acquisitions

Are you anxious about the post-merger situation? Would you like to discuss how to handle potential culture clashes? Sun Acquisitions is Chicago’s leading business broker offering a host of advisory services to both sellers and buyers. Contact us to schedule a complimentary and confidential consultation with one of our certified advisors. Let’s discuss your business and review your goals.

Post Merger – Integration Checklist

October 14, 2020 by Sun Acquisitions

Do you have a post-merger integration (PMI) plan and checklist? Who is in charge of leading the PMI team? What are the respective PMI milestones?

Post-merger integration is as much a part of the M&A life cycle as due diligence, transaction approvals, and the final contract signing. “Ideally, you would start planning as soon as you decide to buy something. If you have no plan for the target company, you are going to pay the wrong price and you are not going to be ready to handle the integration,” says M&A author Danny A. Davis in his book Danny A. Davis on Planning Merger Integrations. “I would do a couple of days planning right at the start. At the latest, I would start building a full integration plan around 100 days before you believe the deal will take place.”

The case for developing a comprehensive PMI checklist

Mergers and acquisitions are hard enough already. Failing to have an adequate PMI checklist will result in additional problems that might be dismissed as a culture clash. “The reason people come down to culture and communications is that they are used as excuses when things go wrong. Rather than admitting they’ve done something wrong or that they had a bad strategy, people talk about culture. It is more important to think and plan the integration strategy for the companies, the products, and the people,” Danny A. Davis explains in his book.

A clear-cut PMI checklist will give direction from Day 1. It will define the roles of each employee to avoid ambiguity and will provide a timeline on when the board and management can expect to have integration complete. Simply put, it is an invaluable document that should detail each of the steps to be taken to promote the seamless integration of the merging entities. Assuming that things will somehow pan out alright without such a policy is the height of folly on the part of the buyers.

Fortunately, you don’t have to look too far for a solution. As experienced business brokers who’ve brokered hundreds of mergers & acquisitions, here are our top tips on how to establish a thorough PMI checklist.

Tip #1. Delegate responsibility to a designated PMI taskforce

It is not wise for the board and management to attempt to oversee the PMI by themselves. Instead, someone with the necessary experience, expertise, and clout should be selected to manage this integral part of the transition.

Such a person and their team will make up the PMI taskforce. They will carefully study the merger and acquisition details, company cultures, and resources to draft a robust PMI strategy. Included in their plan of action should be key integration milestones, their intended form of communication with the board, and when they hope to have integration completed.

Tip #2. PMI Taskforce should establish a new hiring policy

“In any merger, the biggest challenge is always the integration of human resources because the people who are coming in have a lot of apprehensions,” says former Chairperson of the State Bank of India, Arundhati Bhattacharya.

There will be a lot of upheaval at the start. The PMI taskforce must take the bull by the horns and get ahead of the situation by designing a new hiring process. This part of the checklist must detail how the newly formed entity will onboard new hires, prepare the documentation needed for their training, stipulate salaries, and bonuses to avoid any misunderstandings.

Tip #3. PMI Taskforce to formulate an offboarding procedure

The checklist must also include a detailed outline of how redundancies are going to be addressed. It is unfortunate, but there will be casualties post-merger. Consequently, a clear-cut policy on how to deal with laying people off, moving them to other departments, or firing them is mandatory. Severance documents should be prepared ahead of time.

This will not be easy as former CEO of Hewlett-Packard Carly Fiorina observed following what was then the biggest technology sector merger in history between HP and Compaq in 2002, “A merger is hard to pull off under any circumstances. It is even harder when everyone is against you”. In the first few months of the HP and Compaq merger at least 30, 000 employees were laid off. However, the tide would turn and thousands more would be hired in the next three years.

Tip #4. PMI Taskforce to integrate an IT system blueprint

Another very important element that should be on the checklist is the assimilation process of IT systems. This assimilation must be done tactfully and with a sense of utmost urgency because operations must continue with as little disruption as possible.

IT teams will need to be briefed about their new internal organization and hierarchy. Once this is done, the IT team must get to work establishing proper security access and securing the assets of all the new hires and former employees immediately.

Businesses are most vulnerable at such a moment as evidenced by the hacking of Hong Kong-based shipbrokers Anglo-Eastern in April 2020. This incident took place when the company was moving offices. Hackers took advantage of system weaknesses to penetrate and compromise internal systems in order to demand a ransom. This isn’t an isolated case. IBM reports that the average cost of a data breach is $3.9 million. What are we saying? Cyber threats are real, so prepare accordingly.

Tip #5. PMI Taskforce to create communication and performance protocols

How will you know that integration is on track if you don’t have performance indicators? On the checklist should be the creation of clear key performance indicators. These will help teams to know what their responsibilities are and what is expected.

Also, encourage team leaders to have an open-door policy so employees can approach them for open and honest discussions. Business management coach and author of the bestseller The Five Dysfunctions of a Team, Patrick Lencioni puts it this way, “Great teams do not hold back with one another. They are unafraid to air their dirty laundry. They admit their mistakes, weaknesses, and concerns without fear of reprisal.”

You must, therefore, generate a performance review system, a communication plan, and a training and development strategy.

Looking for qualified business brokers?

Sun Acquisitions is one of the leading business brokers in Chicago. Our advisory services include strategy development, divestitures, acquisitions, consultations, and business valuation. To discuss your integration checklist don’t hesitate to reach out to us. Contact us for more information.

Disclaimer: Any information provided in this blog is not intended to replace legal, financial, or taxation advice given by qualified professionals.

How to Confirm Seller Motivation

September 30, 2020 by Sun Acquisitions

Have you always wanted to own a company and are currently thinking of buying a business? Purchasing a business that is already established comes with many advantages. You’re acquiring a business that has already garnered a favorable reputation, sound financial track record, loyal employees and has good relationships with vendors and suppliers. By purchasing an established business you avoid the initial money-crunching startup years. You could say that most of the hard work has been done already.

However, as attractive as buying a business might be, it is of paramount importance to take time to explore seller motivation. If there is a business that’s caught your attention and everything checks out, ask yourself why the owner is selling? Perhaps they may have told you they plan on retiring, wish to spend more time with their loved ones, travel, or are burnt out. These may all be true but perhaps there are other deeper issues they haven’t disclosed. So, how do you confirm a seller’s motivation?

1. Talk to the seller’s business brokers

Who do you approach first when planning on buying a business? A great place to start is the seller’s business brokers. As a buyer, you can get more information about the seller’s motivation from the seller’s own broker. Ask them why the business is up for sale. A broker may even help shed light on some issues the seller might not be able to fully express but which can help all parties get the deal signed. This is a good starting place.

2. Pay attention to the seller’s reaction to your offer

After considering the offer price, make a legitimate offer to the seller. Their response can help you gauge their motivation. If they make no counteroffer to a low offer it is very telling. If you offer full-price and they STILL counteroffer this may indicate a desire to discuss and negotiate more. The more you continue to pander and counter offer the clearer the seller’s motivation becomes.

3. Is the seller offering price reductions?

It is not unusual for businesses that have been on the market for a significant amount of time to begin to offer price reductions periodically. You can generally tell a lot about the seller’s motivation (and urgency to sell) by merely observing how the initial offer price keeps decreasing. This isn’t to say there is anything wrong with the business per se. It may just be an indicator that the seller is keen to sell the business as quickly as possible. Although, there is a fair chance there might be something wrong which you may need to dig to uncover.

4. Have an honest conversation with the seller

This may seem obvious but a lot of people never ask the deeper questions about why the seller is selling their business. The seller may have personal motivating factors for selling the business such as needing to step away so they can spend final moments with a terminal spouse or loved one. Some may need the money to pay for medical bills for life-saving surgeries. At times the sellers may be heirs who don’t wish to run the business. The motivation to sell may be an unexpected one.

5. Establish the seller’s sale urgency

When you take the time to have an honest conversation with the seller, you will get a good idea about the seller’s sale urgency. The sale urgency often mirrors the seller’s motivation. Motivated sellers are generally looking to close the deal as quickly as possible. The more desperate they are to have the business off of their hands, the stronger their conviction, motivation, and interest in selling.

6. The seller has business papers in order ready to sell

A motivated seller will have their papers in order prior to buyers even asking. This shows serious thought has been given to the exit plan. Warning bells should go off if the seller is disorganized and cannot provide basic company documents such as audited financial statements. Someone who is ready to let go of the business will have their ducks in a row and be ready to get things moving because time kills deals.

7. The seller is open to negotiations and not hostile

Sometimes sellers aren’t emotionally ready to sell their business because of attachments. After discussions, you may find that they are being pressurized to sell but in all honesty, they’d rather hang on to the firm. It’s not hard to see that such sellers may not be altogether motivated to sell. In fact, they may drag negotiations over small issues. One of the biggest impediments may be sellers with an unrealistic inflated notion of how much their business should cost despite contrary figures from a business valuation.

8. The seller is concerned about business continuity

Sellers with noble intentions can be seen by the level of concern they have for the business’ continuity. Succession planning, the welfare of their clients, and employees are important to them. They want to know the details of what will happen to the business post-sale. Will the business be stripped, merged, or sold to another company? A seller who takes time to talk about these sometimes overlooked aspects of mergers and acquisitions probably has the right kind of seller motivation.

Are you in need of reliable trustworthy business brokers?

Sun Acquisitions is a strategic broker and M&A firm that can assist buyers and sellers with comprehensive acquisition and exit plans. Take advantage of our expertise and years of experience when pursuing mergers and acquisitions. If you would like advisory services don’t hesitate to contact us for more information.

Disclaimer: Any information provided in this blog is not intended to replace legal, financial, or taxation advice given by qualified professionals.

Corporate Acquisition Strategy

September 29, 2020 by Sun Acquisitions

Over the long haul, many companies fail to reinvent themselves and it ultimately leads to their downfall. Eventually, competitors will catch up or new technology will replace the status quo. Having the financial resources to invest in research and development is a stretch for most, so typically acquisitions provide the easiest option.

Before building the acquisition strategy, companies should first reflect on liquidity and capacity. With regards to liquidity, consider both cash on hand and bank lines of credit. Most targets can be levered as a multiple of EBITDA, so there is substantial scale to be gained with a willingness to take on debt, especially in today’s low rate environment. In terms of capacity, consider whether your company has the ability to absorb more work. Many deals can derive substantial value from cost synergies (e.g., no need for two CFO’s). Also, consider hiring outside advisors if your team lacks M&A expertise to price, negotiate and integrate a deal.

When building a core strategy, most companies consider three fundamental options:

Grow organically
Acquire
Sell or Partner

Regarding acquisitions, typically they will fall into one of these categories:

Open minded companies should consider all purchase options in developing both short-term and long-term strategies. Consideration of all options, combined with substantial diligence, should better enable the long-term viability of the firm.

About Sun Acquisitions:

Sun Acquisitions is a Chicago based M&A firm specializing in helping businesses confidentially buy and sell privately held firms. Our team is comprised of certified business intermediaries with deep transactional knowledge and experience across a broad range of industries. Our Advisors have experience working on hundreds of due diligences for small and middle market transactions.

Let our team of Advisors and former Corporate Development Professionals help drive your business to the next level. Contact Sun Acquisitions for a free consultation at [email protected].

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