A few years ago, I was fortunate enough to lead the acquisition of a competitor, a lower middle-market company that was smaller than the acquirer. The acquirer had a distinct culture and, on the surface, a seemingly different one from the acquiree. Culture integration was top of mind for us as we began developing our investment thesis. The acquisition was successful and provided a significant cash-on-cash return, which substantially increased the enterprise value of the acquirer.
One of the first questions while evaluating the merits of investing time in this project was, “What current or future problems does this acquisition solve?” In our case, these were the items of significance.
- Increased penetration in specific market segments.
- Shortened lead times — thus lowering inventory carrying costs for customers — by leveraging operating resources across the facilities that were located within hours of each other.
- Sharpened the talent pool and know-how.
- Mitigated future risks associated with the gap in matching skills. Looking 10 years out, this was one of the most significant business risks for the acquirer that had an aging machinist workforce.
The first 100 days post-acquisition are important, both from an integration perspective, as well as getting a comfort level on tactical elements of the investment theses. We spent time with our new team members to further sharpen our knowledge of the acquired entity’s core differentiators in the marketplace, as well as the areas that needed development. Leveraging the strengths, one of which was engineering prowess, turned out to be a boon. Understanding their reasons for mediocrity and laying out action plans to bridge the gap to excellence was also critical.
The integration team and I met and spoke with every single employee fact to face over the first few weeks after the acquisition closed. We learned their values, motivators and perception of the business at hand.
Real issues arose through various rounds of conversations and provided us useful feedback. We also asked them where they felt our focus should be. We made no changes with personnel because we wanted to run the organizational system as is before we figured out the core issues, which we gave ourselves 100 days or sooner to do. Acquiring a small company brings risks of its own — concentration of customers, lack of resources, lack of thinkers vs. doers, to name a few. We did not want to create new problems.
We made significant efforts to protect the existing baseline revenue. Integrations can be messy and distracting. Associates are worried about keeping their jobs and are distracted. Hence, quality and on-time deliveries can suffer.
To mitigate these risks, efforts were taken to ensure that we maintained those KPIs at a minimum, knowing very well that improvements were coming in the very near future.
We also shared best practices and information across all the entities to identify future leaders, sharpen the commercial and operational factors such as pricing and takt times — the rate at which you need to complete a product for customer demand — and collaborated to develop a shared set of expectations.
Ultimately, it was our discipline and laser-like focus in the first 100 days that shaped our results many years later. “We must all suffer one of two things: the pain of discipline or the pain of regret or disappointment,” said Jim Rohn, author of several self-help books. What an appropriate statement when making an acquisition. ●
Sanjay Singh is Executive chairman of the board of directors at Mace Security International