Kison Patel is the Founder and CEO of DealRoom, a Chicago-based diligence management software that uses Agile principles to innovate and modernize the finance industry. As a former M&A advisor with over a decade of experience, Kison developed DealRoom after seeing first hand a number of deep-seated, industry-wide structural issues and inefficiencies.
CEO and Founder of DealRoom
Transformation. Evolution. Revolution.
Whatever world you choose, there is no denying that M&A at its core is about change - for the acquirer and the target.
Even growth, the most commonly cited motive for undertaking M&A given by managers is just a different word for change.
It’s a mystery, then, why the M&A community has largely overlooked the value of change management. This is a potentially costly oversight.
Where a business stands at the other side of change is ultimately a measure of how well it was managed.
The Change Manager Role
The easiest way to think of the change manager role is as a project manager, where the project is fundamental change for your organization.
The bigger the acquisition, the more processes, technology, job roles, structures and culture can (and indeed, should) change.
Traditional manager have neither the time nor the experience to oversee this transition, which is where change managers come in.
What is Change Management?
Change management is the process through which a company creates value from change. It takes an analytical approach and considers all of the areas which traditional M&A overlooks in the M&A process from people and values to processes and technologies.
Underestimating the Power of Change
A well-trodden maxim goes that the biggest investment anybody will make over the course of their lifetimes is their house.
And for a company?
If we’re talking about one-time investments, invariably the biggest investment that a company will ever make involves some element of M&A. That is as true for tech firms as it is for the thousands of medium-sized firms whose deals fill Capital IQ every year.
And yet, despite the transformative impact that M&A has on businesses of all sizes, change management is almost never mentioned. Perhaps managers equate the acquisition of companies with that of capital expenditure - a balance sheet addition.
Whatever the reason, it’s a potentially disastrous mistake to make. Having had privileged access to the inner workings of thousands of deals, we believe that change management deserves a role all on its own in the M&A process.
As competent as you believe your office manager or HR director to be, you can’t put them in charge of change management. Nor is it good enough to say that it’s a ‘collective responsibility.’ Being serious about M&A involves creating a dedicated change management role.
This could be a hired hand brought on board for an extended period, or someone who will fulfill the role over a series of acquisitions that your company is planning. Bringing someone of this nature onto your M&A team has several benefits:
Within your business, having a dedicated role for change creates a culture prepared for M&A. It moves from being a process based on ad hoc procedures to one where the goal is to maximize value at every stage of the process (particularly after the deal has closed).
Outside the business, the presence of a change management officer creates a smoother relationship between the buyer and its targets, before, during and after any transaction has taken place.
Perhaps this is best captured by renowned change management expert Dawn White, who says that when it comes to change management: “Methodology is the driver.”
Methodology is the driver
Putting Dawn White’s advice into practice, we recommend that companies implement some variant of the methodology that DealRoom has constructed (see below), which is based on findings from thousands of deals.
This constitutes change management best practice and should include:
Change Management Best Practices
Set up one-to-one interviews and focus group sessions
Use surveys to find the big picture
Produce a comprehensive report of your findings and present it to stakeholders
Be sure the comprehensive report includes personalized calls to action
Consider conducting a potential resistance analysis
Let’s now take a detailed look at these points in order.
1. One-to-one interviews and focus group sessions with the target company
Nothing sends shockwaves through a group of employees like telling them that their company is being acquired.
The mere mention of another firm on the horizon can create a siege mentality among target company employees, who all start to look around wondering whose job is first to go.
Facetime between these employees and the change manager serves to reduce this anxiety, bringing a more human aspect to the process. Employees who may have become hostile, or even left the target company, can be won over to the new vision being proposed.
Furthermore, by interviewing a broad swathe of employees within the firm - from top to bottom - the change manager can learn about the company’s internal workings, its culture and possibly even some problems that wouldn’t have been encountered without the face-to-face interaction.
2. Use surveys to flesh out the big picture
What people may be reluctant to put across in a face-to-face meeting, they should be more willing to express in a confidential survey that allows them to vent their emotions. A well-designed survey should draw out insightful answers.
For example, suppose one of the employee concerns that came up again and again during your interviews was the lack of opportunities for promotion within the firm. Fantastic - it could be that you’re going to inherit an ambitious workload. Structure the survey around this. Ask questions like “how can you contribute more to the company?” and “How could we value your contribution more than it is being valued now?”
Thus, well thought-through surveys will build on the findings from the interviews to paint a clearer picture of what’s going on.
3. Produce a comprehensive report of your findings and present it to stakeholders
By now, you should have some insightful findings which can be presented to stakeholders within the acquiring firm.
There could be a number of issues which the findings show up. For example - a lack of knowledge in a certain area, cultural problems that exist within the workforce or any number of so-called ‘soft’ (human) issues which, left unchecked, have the potential to bring down deals.
The positives and negatives drawn from the findings should be laid out in the clearest terms possible: “The positives we see in acquiring this firm are _____________ while we are somewhat concerned about _________________.”
4. Be sure the above report includes personalized calls to action
This is possibly the area in which the change management expert adds most value to the acquisition process.
By adding personalized calls to action, they assign responsibility (and by extension, accountability) to important tasks which could become sidelined otherwise. If drawn up - and of course, implemented - well, this report should be the basis for the company to drive value generating changes from this point on.
5. Consider conducting a potential resistance analysis
Similar to the face-to-face sessions with employees, a potential resistance analysis allows both sides of the acquisition to see what potential resistance (i.e. value destroyers) are within the organizations.
At this step, don’t fall into the same trap that employees may have fallen into at an earlier stage - i.e. a ‘them and us’ mentality. The idea here is to drive this forward, not to drive people out. Uncover what employees on each side are anxious about, what they see as being the negative points about the deal for them and for others, and - where they see their roles in the company’s future.
Create a mood of transparency and this will almost certainly yield some valuable insights.
Six months after the transaction, conduct a climate survey and present findings to executives
This is a repeat of the previous steps with a change in perspective: You’re now asking the questions after the fact. Some of the initial concerns expressed by employees six to nine months before could now be shown to have had real foresight. Other concerns - hopefully - will have been unfounded.
The purpose of the climate survey is to work out one from the other, how everyone is adapting to the new changes and what concerns still remain (or, more worryingly, have arisen) since the companies merged. This should all be presented to management, as before, to be dealt with as soon as possible.
Why change management is often forgotten in M&A
Because it is not tangible.
We cannot always see what is being done like we can with traditional project management - change management is often overlooked or inadvertently forgotten. Unfortunately, it is when you start seeing what is not happening (people are not embracing new culture, work is not getting done properly, and synergies are not being met) that you realize change management is not being implemented.
To combat this, M&A change management needs to be brought to the forefront and differentiated from project management.
Specifically, change management cannot be thought of in terms of tasks and checkmarks, rather it needs to be seen as an approach to make sure the people on both the acquiring side and target side are being “taken care” of across all functions.
Using change management to identify and prioritize roadblocks
One of the areas in which change management can garner the largest impact is identifying deal and synergy killers.
Using an impact analysis, change management team members can look at areas such as foreseen debt, differences in operational styles, and benefits and bring them to the forefront early on. Once these issues are identified, mitigation can begin, which ultimately gives these roadblocks less destructive power.
When early identification of issues is not wielded as a weapon against roadblocks, small issues can wreak havoc on a deal later on. We have witnessed something as seemingly simple as payroll moving from weekly to biweekly lead to problems and lack of employee retention.
Here are some strategies for prioritizing and addressing issues related to culture and change management
Look at what is high priority to employees and ensure they are dealt with quickly - again, people are key.
Examine and gravitate towards roadblocks that line up with the key objectives of your integration.
Another approach is to identify low hanging fruit - simple issues that can be quickly and easily rectified - this will allow you to gain some momentum.
Overall, consider impact and effort when deciding where to start. Once you believe you have fixed an issue, change management teams should check in with both sides to see if employees truly feel/see a difference.
Where and Why You Might Face Resistance?
It is essential to remember employees from the target company might be resistant.
Remember, they did not ask to come to the purchasing company.
Some common feelings and signs of resistance are members of the target company may feel as though the purchasing company is of less value than them, or they are not interested in being a part of a new organization.
Finally, resistance may come about because the purchasing company has not put in the extra effort to truly teach the acquired company about its organization's structure and core practices or how to be successful in the new work environment.
These feelings often result in acquired employees not bringing all their energy and talent to the table.
Conclusions
Just reading through this article, you can probably get a feel for just some of the issues that tend to arise during the integration phase.
But imagine trying to conduct a deal without going through the steps we’ve just outlined.
Change management is an ongoing process.
Coming to terms with this and taking the necessary steps within your organization to accommodate for change is the first step to ensuring a successful M&A process.
What is Change Management?
Change management is the process through which a company creates value from change. It takes an analytical approach and considers all of the areas which traditional M&A overlooks in the M&A process from people and values to processes and technologies.
Whatever world you choose, there is no denying that M&A at its core is about change - for the acquirer and the target.
Even growth, the most commonly cited motive for undertaking M&A given by managers is just a different word for change.
It’s a mystery, then, why the M&A community has largely overlooked the value of change management. This is a potentially costly oversight.
Where a business stands at the other side of change is ultimately a measure of how well it was managed.
The Change Manager Role
The easiest way to think of the change manager role is as a project manager, where the project is fundamental change for your organization.
The bigger the acquisition, the more processes, technology, job roles, structures and culture can (and indeed, should) change.
Traditional manager have neither the time nor the experience to oversee this transition, which is where change managers come in.
What is Change Management?
Change management is the process through which a company creates value from change. It takes an analytical approach and considers all of the areas which traditional M&A overlooks in the M&A process from people and values to processes and technologies.
Underestimating the Power of Change
A well-trodden maxim goes that the biggest investment anybody will make over the course of their lifetimes is their house.
And for a company?
If we’re talking about one-time investments, invariably the biggest investment that a company will ever make involves some element of M&A. That is as true for tech firms as it is for the thousands of medium-sized firms whose deals fill Capital IQ every year.
And yet, despite the transformative impact that M&A has on businesses of all sizes, change management is almost never mentioned. Perhaps managers equate the acquisition of companies with that of capital expenditure - a balance sheet addition.
Whatever the reason, it’s a potentially disastrous mistake to make. Having had privileged access to the inner workings of thousands of deals, we believe that change management deserves a role all on its own in the M&A process.
As competent as you believe your office manager or HR director to be, you can’t put them in charge of change management. Nor is it good enough to say that it’s a ‘collective responsibility.’ Being serious about M&A involves creating a dedicated change management role.
This could be a hired hand brought on board for an extended period, or someone who will fulfill the role over a series of acquisitions that your company is planning. Bringing someone of this nature onto your M&A team has several benefits:
Within your business, having a dedicated role for change creates a culture prepared for M&A. It moves from being a process based on ad hoc procedures to one where the goal is to maximize value at every stage of the process (particularly after the deal has closed).
Outside the business, the presence of a change management officer creates a smoother relationship between the buyer and its targets, before, during and after any transaction has taken place.
Perhaps this is best captured by renowned change management expert Dawn White, who says that when it comes to change management: “Methodology is the driver.”
Methodology is the driver
Putting Dawn White’s advice into practice, we recommend that companies implement some variant of the methodology that DealRoom has constructed (see below), which is based on findings from thousands of deals.
This constitutes change management best practice and should include:
Change Management Best Practices
Set up one-to-one interviews and focus group sessions
Use surveys to find the big picture
Produce a comprehensive report of your findings and present it to stakeholders
Be sure the comprehensive report includes personalized calls to action
Consider conducting a potential resistance analysis
Let’s now take a detailed look at these points in order.
1. One-to-one interviews and focus group sessions with the target company
Nothing sends shockwaves through a group of employees like telling them that their company is being acquired.
The mere mention of another firm on the horizon can create a siege mentality among target company employees, who all start to look around wondering whose job is first to go.
Facetime between these employees and the change manager serves to reduce this anxiety, bringing a more human aspect to the process. Employees who may have become hostile, or even left the target company, can be won over to the new vision being proposed.
Furthermore, by interviewing a broad swathe of employees within the firm - from top to bottom - the change manager can learn about the company’s internal workings, its culture and possibly even some problems that wouldn’t have been encountered without the face-to-face interaction.
2. Use surveys to flesh out the big picture
What people may be reluctant to put across in a face-to-face meeting, they should be more willing to express in a confidential survey that allows them to vent their emotions. A well-designed survey should draw out insightful answers.
For example, suppose one of the employee concerns that came up again and again during your interviews was the lack of opportunities for promotion within the firm. Fantastic - it could be that you’re going to inherit an ambitious workload. Structure the survey around this. Ask questions like “how can you contribute more to the company?” and “How could we value your contribution more than it is being valued now?”
Thus, well thought-through surveys will build on the findings from the interviews to paint a clearer picture of what’s going on.
3. Produce a comprehensive report of your findings and present it to stakeholders
By now, you should have some insightful findings which can be presented to stakeholders within the acquiring firm.
There could be a number of issues which the findings show up. For example - a lack of knowledge in a certain area, cultural problems that exist within the workforce or any number of so-called ‘soft’ (human) issues which, left unchecked, have the potential to bring down deals.
The positives and negatives drawn from the findings should be laid out in the clearest terms possible: “The positives we see in acquiring this firm are _____________ while we are somewhat concerned about _________________.”
4. Be sure the above report includes personalized calls to action
This is possibly the area in which the change management expert adds most value to the acquisition process.
By adding personalized calls to action, they assign responsibility (and by extension, accountability) to important tasks which could become sidelined otherwise. If drawn up - and of course, implemented - well, this report should be the basis for the company to drive value generating changes from this point on.
5. Consider conducting a potential resistance analysis
Similar to the face-to-face sessions with employees, a potential resistance analysis allows both sides of the acquisition to see what potential resistance (i.e. value destroyers) are within the organizations.
At this step, don’t fall into the same trap that employees may have fallen into at an earlier stage - i.e. a ‘them and us’ mentality. The idea here is to drive this forward, not to drive people out. Uncover what employees on each side are anxious about, what they see as being the negative points about the deal for them and for others, and - where they see their roles in the company’s future.
Create a mood of transparency and this will almost certainly yield some valuable insights.
Six months after the transaction, conduct a climate survey and present findings to executives
This is a repeat of the previous steps with a change in perspective: You’re now asking the questions after the fact. Some of the initial concerns expressed by employees six to nine months before could now be shown to have had real foresight. Other concerns - hopefully - will have been unfounded.
The purpose of the climate survey is to work out one from the other, how everyone is adapting to the new changes and what concerns still remain (or, more worryingly, have arisen) since the companies merged. This should all be presented to management, as before, to be dealt with as soon as possible.
Why change management is often forgotten in M&A
Because it is not tangible.
We cannot always see what is being done like we can with traditional project management - change management is often overlooked or inadvertently forgotten. Unfortunately, it is when you start seeing what is not happening (people are not embracing new culture, work is not getting done properly, and synergies are not being met) that you realize change management is not being implemented.
To combat this, M&A change management needs to be brought to the forefront and differentiated from project management.
Specifically, change management cannot be thought of in terms of tasks and checkmarks, rather it needs to be seen as an approach to make sure the people on both the acquiring side and target side are being “taken care” of across all functions.
Using change management to identify and prioritize roadblocks
One of the areas in which change management can garner the largest impact is identifying deal and synergy killers.
Using an impact analysis, change management team members can look at areas such as foreseen debt, differences in operational styles, and benefits and bring them to the forefront early on. Once these issues are identified, mitigation can begin, which ultimately gives these roadblocks less destructive power.
When early identification of issues is not wielded as a weapon against roadblocks, small issues can wreak havoc on a deal later on. We have witnessed something as seemingly simple as payroll moving from weekly to biweekly lead to problems and lack of employee retention.
Here are some strategies for prioritizing and addressing issues related to culture and change management
Look at what is high priority to employees and ensure they are dealt with quickly - again, people are key.
Examine and gravitate towards roadblocks that line up with the key objectives of your integration.
Another approach is to identify low hanging fruit - simple issues that can be quickly and easily rectified - this will allow you to gain some momentum.
Overall, consider impact and effort when deciding where to start. Once you believe you have fixed an issue, change management teams should check in with both sides to see if employees truly feel/see a difference.
Where and Why You Might Face Resistance?
It is essential to remember employees from the target company might be resistant.
Remember, they did not ask to come to the purchasing company.
Some common feelings and signs of resistance are members of the target company may feel as though the purchasing company is of less value than them, or they are not interested in being a part of a new organization.
Finally, resistance may come about because the purchasing company has not put in the extra effort to truly teach the acquired company about its organization's structure and core practices or how to be successful in the new work environment.
These feelings often result in acquired employees not bringing all their energy and talent to the table.
Conclusions
Just reading through this article, you can probably get a feel for just some of the issues that tend to arise during the integration phase.
But imagine trying to conduct a deal without going through the steps we’ve just outlined.
Change management is an ongoing process.
Coming to terms with this and taking the necessary steps within your organization to accommodate for change is the first step to ensuring a successful M&A process.
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