Acquisition is the easy bit, afterwards come the problems. So is there a formula for success? Ian Bowen provides some answers
' As M&A activity continues to increase in the UK broking community, answering a number of questions is vital.
The process for acquisition is well established. Most acquirers will have engaged advisers to provide strategic planning and target identification. There will then have been some initial negotiation of the deal leading to due diligence and if all goes well contracts and closure. Job done.
Actually no, as this is where the hard work begins. It is possible to recognise the recurring themes in getting a merger to work in the long term. Among them are:
The benefits of business integration sought by investors need to be sold through sensitive, but focused. management. Knowing the benefits of the merger and actually selling them are very different. One reason for failure of a merger may be a gap of communication between the dealmakers and implementers involved after the acquisition.
Clear expectations and a great communications plan are no guarantee of success if you do not take into account the culture of the companies being merged. Nine out of ten managing directors will tell you that the most important assets of the business are the people.
Equally the managing director's personality will often dictate the culture of a business. This is particularly true in the broking industry where typically, the businesses have grown by a dominant, owner-manager.
Failure to recognise cultural differences and plan for the affect a merger will have at all levels within the business can seriously delay integration and increase the investment required for success.
Setting expectations as part of the pre-contract acquisition process will have a major impact on the ease of business integration. It is important for the acquirer to be able to segment his existing and future business into constituent parts and to know how much of the acquired business will fit into each category as part of the due diligence process.
What are the expectations of each category? The analysis of the performance of people, products, customers, insurers, premiums, commissions etc while the full integration of the business is in train will set expectation and measure progress.
Analytical tools are can play a vital role. Are there opportunities for increased productivity in the merged business? Should we rationalise the number of schemes operating? Would a customer contact centre be viable across the merged group?
Analytical tools allow the expanded business to quickly take advantage of economies of scale. For example, increased buying power as access to a broader range of insurers ensues.
Change generates uncertainty and this tends to lead to fear among staff, manifesting itself in a number of ways during and after a merger. For example, there is a reluctance to take the decisions normally within one's remit as they are not sure of the future process. There is also a fall off in customer service as department responsibilities change or move.
Credit control problems may arise as new systems are introduced.
Letting everyone involved with the business (staff, customers, suppliers and shareholders) know what is happening and keeping them informed is critical.
A clear communication plan must be part of any acquisition strategy. People do not generally come to work to do a bad job. If they know what is expected of them and are clear about what procedures they need to follow, they have a chance to perform.
Of course it is not always possible to give good news, for example there could be redundancies. But the sooner people know the sooner they can deal with it and the organisation can move forward.
Dealing with political and cultural issues takes an enormous amount of management time and more importantly, unless they are tackled effectively will have a debilitating effect on morale and become increasingly difficult to deal with. Having well thought out policies which have a direct impact on people's lives and setting realistic expectations at the outset will pay the dividends that the investors are ultimately looking for.
The loyalty felt by staff to the (selling) owner-manager may have taken many years to foster and could disappear overnight if the human element is overlooked.
Often promises made to managers and staff will not be kept as the reality of post closure dawns. One of the most important points people will want to know is are their jobs safe, or if there are to be reassignments or redundancies where? Early clarity on this issue will give people and the organisation time to adjust and prepare.
The order of dealing with the business integration issues can be key and Brian Kennedy a Campion Willcocks Associate advising brokers on acquisition and business integration, believes that the first major task is to recognise the separate cultures that exist.
Then he says it has to be appreciated that clashes in these cultures may reoccur throughout the integration process.
By way of example Kennedy says: "A merger or acquisition will in advance of its conclusion, have convinced a range of interested parties that their expectations and aspirations will be met.
"These parties will include the investors and shareholders, and attention will be given to the regulators, media, the directors and managers employed by the expanded businesses. Only after the acquisition has taken place will the process of buying in the potentially anxious workforce begin."
Identifying key staff and creating a new organisation around them usually has one significant flaw in that it is unusual for the typical medium to large sized brokers to have project management strength in depth.
But this is what will be required within a few weeks of an acquisition completing as initiatives to achieve the benefits are undertaken. The use of external consultancies to fill this gap may be required, but is often overlooked when the post-closure planning is put together.
Disparate IT systems that are inherited can exacerbate cultural differences. The consolidation of these systems is usually perceived as one of the major benefits of any acquisition. The selection and implementation of new computer systems should never be taken lightly and should only with extensive buy-in from the business. They are often someone's 'baby' and an un-thought through change can have serious implications.
The timescales for getting this right are usually longer than originally planned and this gives rise to another serious problem - what to do in the interim?
Soft landing through the use of tactical management and business information tools can provide the business with the information it requires to take the expanding business into its chosen market with confidence. This buys time to address the longer-term system issues.
Having a strategy for accessing and distributing information post acquisition is vital. This is one of the key decisions Country Mutual Insurance Brokers made at the outset. Andrew Spriggs, operations manager, explains: "We had put in place an interim management information system which was meant to last for about 24 months while new IT systems were installed and we switched off the acquired legacy systems."
So perhaps unsurprisingly, the key to successful acquisition is not a formula but having a properly planned and fully costed post-closure strategy in place before the acquisition process starts.
Knowing in advance whether cost saving can be made through centralisation of common functions, such as accounts or claims would be a distinct advantage. Assessing the pros and cons of these policies including the human impact and who will manage this radical change in the business process would certainly help.
This will set everyone's expectation of the merger process provided you tell them. Reinforcing this communication throughout the transition will go a long way to overcoming cultural obstacles.
Unless planned properly with consideration given to existing customers, products, markets and staff and to the potential future acquisitions, it is likely that chaos will ensue. IT
' Ian Bowen is sales director at IT-Freedom