Monday, January 18, 2010

When an Acquisition Becomes a Distraction

With business finally showing signs of recovery, the amount of M&A activity is sure to pick up again as money becomes more readily accessible.  We have already begun to see the increase with large corporations including ExxonMobil's acquisition of XTO Energy, Stanley Works purchase of Black & Decker, and Google's announcement to purchase AdMob.

Small company M&A activity has also begun to increase and I expect the trend will continue as the level of confidence in the future grows.  Although true of any size company, small companies must be especially careful that an acquisition does not become such a distraction that it pulls management attention away from running the organization, as a whole.

Fighting the Distraction

Since an acquisition ties up a lot of a company's capital, there  is often a great deal of pressure to assure the newly acquired company becomes profitable as quickly as possible.  Unfortunately, it is common for a number of problems that were undiscovered during the due diligence process to surface fairly soon after the acquisition takes place.  These problems have a tendency to become a drain on management resources, and can easily pull the attention of the company's senior leaders away from running the business.

Organizations do not run themselves.  Even with the most successful organizations, bad habits can creep in that will lead to long-term problems if not dealt with quickly.  Since senior leaders in small companies tend to be much closer to the organization's activities than do those in medium and large companies, they often have more of a direct effect on the company's operation than they realize.  A long-term distraction - like an acquisition requiring a lot of attention - can fundamentally change the parent organization before the leaders realize it has happened.

What to Do

If at all possible, attempt to understand the critical issues before the acquisition takes place.  For a variety of reasons, this is not always possible, so it is important to assess the acquired company quickly to learn about the problems that can prevent or delay success.

Once the issues are understood, it is critical for the leader to assign responsibilities and clarify expectations quickly to keep from getting too wrapped up in the issues.  There needs to be frequent updates about the progress in addressing the issues so action can be taken quickly to keep the changes on track.

Dealing with an acquisition without ignoring the overall business may require temporarily assigning people and/or bringing in outside help for a short period of time to help with the transition.

There will obviously be situations where additional attention is warranted by senior leaders to put the merger back on track, but it is essential to remain sensitive to the possibility of distraction in the process.  Above all, never forget the company's fundamental purpose throughout the process and focus effort on integrating the acquisition in a way that does not compromise the mission and vision of the new, larger organization.  Doing this will greatly enhance your ability to assimilate the acquired company quickly and successfully.

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