Successful M&A Integrations

Corporations continuously Underestimate Post-Merger Integration (PMI) Costs, yet when an effort is made to balance time, budget and team with the appropriate planning, PMIs can be a success!

Based on our experience, the three most overlooked areas and those which executives say they would approach differently in the next M&A event, are:

1. Under budgeting the Integration Process

2. Lack of Communications

3. Lack of back office focus

Listen to our short video for this month’s RudiTuesday for steps to take and how to properly plan your next acquisition.

The case below shows that by identifying the predictable risks at the beginning stage of a deal, you can realize the maximum VALUE of the merger.

Case Study: Addison Wesley Longman – HarperCollins – 1996

submitted by Derek Smith, Managing Director of Next Stage Solutions, Inc

In early 1996, Addison Wesley Longman, a subsidiary of Pearson Plc and $650 million publisher of text books and related materials for the K-12 and college markets purchased HarperCollins’ business which had annual revenues of approximately $300 million. In announcing the acquisition Pearson Plc advised the financial markets that it would complete the integration of the two companies by January 1, 1997. Having disappointed its shareholders and analysts with a previous foray into electronic publishing, Pearson and Addison Wesley Longman were therefore under extreme pressure to complete the integration successfully and on time. Below are the steps they took to complete the task on time despite a three week cessation while the parties re-negotiated a post-closing adjustment.

1. Formation of Task Forces Prior to Closing of the Transaction and Identification of Integration Leader

Addison Wesley Longman and HarperCollins created 4 task forces prior to closing of the transaction to discuss (1) publishing properties that would survive the acquisition; (2) salary and benefit plans after the acquisition; (3) location of distribution facilities; and (4) the back office systems to support the combined entities. Each group understood that they could discuss their goals but could not reach any decisions until after closing of the transaction. Each group created a project plan to serve as the road map during the process. The CEO of Addison Wesley Longman was named Integration Leader and each task force had an AWL leader too.

2. Publication of an Integration Newsletter

The two companies published an Integration newsletter beginning the day after the closing of the transaction and throughout the integration period. It kept employees informed of the process and the decisions being made by the task forces. In all cases, the publication of decisions was made after advising those impacted of them (employee terminations, employees and their benefit plans, cancellation of author contracts, closing of facilities, etc.).

3. Regular Internal Updates on Completion of Tasks

Each of the four task forces met at least bi-weekly to review the status of their project plans. The back office systems group met weekly and AWL engaged an integration specialist from Deloitte & Touche to monitor the process and provide assistance when items slipped. Peer pressure played a significant role in completing the workplans as no one wanted to be identified as the culprit for failure.

4. Regular External Updates on Completion of Tasks

In addition to the regular internal updates, the AWL executives met with Pearson Plc executives to update them on the status of the integration and to identify any looming challenges that would impact completion of the projects by January 1, 1997.

5. Open Dialogue

During the fall of 1996 AWL identified that a significant post-closing adjustment was required. Before approaching HarperCollins, the AWL and Pearson executives discussed the implication of introducing a challenge to the valuation on the integration schedule. Ultimately the executives agreed that the materiality of the adjustment exceeded the value of completing the integration on time. Two executives at Pearson Plc and AWL had a longstanding relationship with a senior executive at News Corp, the corporate parent of HarperCollins, and they were charged with quickly resolving the dispute. They met with their colleague, identified the issue, and together determined a fair solution for both parties. During this three week period, there were no integration conversations between the two companies.

Outcome

On January 2, 1997 the integration was completed.

Next Stage Solution’s managing directors have been involved in acquisition integration projects. Let us help you with your integration plan and make it a SUCCESS!  Call us today at 617-449-7728

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