The key to successful consolidation in the run-up to regulation is finding a cultural fit between companies that can be developed and maintained, says Martin Lewis
Much has been said about the direct impact that forthcoming regulation will have on the pace of consolidation. The received wisdom is that merger and acquisition activity would reach previously unseen levels. Sector fragmentation coupled with a lack of an exit route are two of the reasons why businesses will look to consolidate. And naturally compliance costs are also a factor.
Interestingly, as the regulatory date approaches, a number of high profile consolidators have gone on record as saying they have decided to freeze acquisition activity as they believe that acquisitions could adversely affect their own compliance plans. This is where we differ.
As an AIM-listed company we have a duty to our shareholders to provide value and feel that the acquisitions we've made to date are complementary to our business and are in no way hindering our path to regulation.
Our strategy? Culture is the critical facet in any acquisition and we focus heavily on ensuring there is sufficient common ground between the businesses before any potential acquisition is considered. Even when there is an immediate synergy, it is essential that sufficient time and effort is expended in maximising this and creating a cultural fit. This is achieved during negotiations and maintained throughout the relationship.
Compliance should not be the determining factor when making an acquisition. The businesses that we have acquired to date are successful in their own right. It may well be that their formal compliance plan has not been designed and implemented, but good business practice will be in place.
The challenge then is to overlay our compliance model and ensure that the appropriate procedures are adopted. We believe that our compliance mechanisms are robust. As long as a company has a well-structured deal, the convergence of the companies should be seamless.
In a recent acquisition, we went through a process whereby there were immediate apparent synergies, and in particular when we overlayed our own compliance we took the opportunity to review both strategies in order to achieve best practice.
In our experience, if the vendor fully understands and buys into the cultural shape of the business going forward the potential difficulties are greatly reduced.
An important aspect of this cultural fit is the attitude toward change. A mind-set that accepts and even welcomes change is integral to consolidation. Our acquisition model, which sees an early physical integration, allows us to manage the change process and ensure the common culture is maintained, particularly as the majority of acquisitions to date have been brought under one roof.
We believe that the sentiment to slow the pace of consolidation plans is unfounded. We are confident that our tried and tested acquisition model works effectively. We have a robust compliance regime, a full-time compliance manager and the determination to make the acquisition process in the second half of 2004 a resounding success.