A CFO’s Role in M&A Integration
Cal began the meeting by asking “How are you setup internally, do you have a business development team sourcing deals, are you counting on bankers, does your company generate and source these transactions?”
Larry responded by saying that his companies sourcing methods have changed as it has grown but that ARRIS currently has a small group that focuses on strategy. “Part of our job is market assessment, marketing, and data collection, but part of it is screening and monitoring all of the opportunities around that require us to be very well integrated with the business teams and the technology teams, that are always trying to figure out “what is the next step of migration?” Larry then moved on to say that ARRIS handles sourcing by focusing on all of the opportunities and they stay as closely partnered with the technology and internal development of the companies as possible.
Cal shifts gears as he asks John Gamble to introduce his company. After this, Cal asks John, “What areas concern you most when dealing with transactions?”
John answered by stating that it is all about strategy. He explained that he believes it is important that there is consistency between the areas of capital investments at the company, and the areas of acquisitions He emphasizes that as Equifax focuses on data, how to manage it effectively and deliver advanced analytics, the strategy is to focus acquisitions within this area of expertise. This increases the likelihood of success of the acquisition. John mentioned that a key strategic focus is the uniqueness of the data being acquired, If the data is unique, and we can maintain its uniqueness, then the value can be maintained and enhanced.
Cal then asks John, “Internally, how are you set up from a deal team perspective?
John answered that Equifax has a small team that focuses on business development processes. Also, he stressed how vital integration is in any acquisition, and that this business development team is also very involved in integration. The Business Unit that proposed the acquisition must be very focused on ensuring the acquisition is successful, and the integration occurs quickly and is consistent with the strategy behind the acquisition. Equifax assigns dedicated integration leaders to ensure the acquisition is integrated well.
Cal asks Larry to speak about his experience with “day one, post-closing” when they were dealing with Motorola.
Larry answered by discussing some of the problems that he has had, in the past, and moved to suggest that what his company tries to do is establish a set goals and follow through on those as time progresses. He said they looked at the future and said, “If you have the scale of a Motorola transaction you establish a “future state” where we want to be and set the milestones and thresholds to get there: follow through with that and measure the achievement. Set a goal and establish a mission statement and a cultural statement around those goals and decide where everybody should fit.” He concluded that, though the outcome/ effectiveness of this was difficult to measure, it seemed to help.
“Part of our job is market assessment, marketing, and data collection, but part of it is screening and monitoring all of the opportunities around that require us to be very well integrated with the business teams and the technology teams, that are always trying to figure out “what is the next step of migration?”
Next, Cal mentioned that, according to statistics, the primary reason deals fail is a result of “the cultural issue”, and asked John to speak about closing quickly. Referring directly to whether or not setting benchmarks, such as 100/200 day plans, is helpful.
John answered that it is difficult to do substantial integration planning until after the closing has been completed. It is very difficult, especially when acquiring a very small company. “It’s very easy to overwhelm the acquired company if you move too far into integration planning before you can fully engage the acquired company”, he said. There are things you can do ahead of the closing, specifically ensuring that everyone involved in acquisition integration within the acquiring company has a very clear understanding of the value drivers and principals; and then ensuring you’ve agreed on those principals. It’s all about clarity, principals and having the right people in place.”
Cal agrees with John’s point and then directs his next question to Larry, “When you bought the Motorola Home piece, you talked about culture, they were bigger than you guys. Was it more of an assimilation of you into them? How did you navigate that and build that mission statement?”
Larry says that in the Motorola deal, it was simpler because the two companies were very familiar with each other; to the point that ARRIS was actually a “savior” to the company after they’d had problems when dealing with Google. He went on to say that even though it was an easier transaction on the cultural front; they still spent a great deal of time in the pre-closing phase.
Cal asks John “What type of outside groups do you use to help with communications and operations planning?”
John indicated that the bulk of the integration effort for Equifax will be internal but that they would use third parties for specific areas of expertise, and to help support people within the company during the integration. Equifax will also use third parties to help them with government or public relations, or other areas where an understanding of the local market environment is very important. John also discussed the value of structuring the integration budgets, and integration measurements, to ensure that everyone is incented to move quickly to complete the integration process.
Cal then directs the same question to Larry who replies that his experience has been similar in that his company is pretty well staffed to handle everything but when help is needed, they will bring in third parties.
Cal asks Larry “How involved is the CEO in the integration process?”
Larry answers that his CEO is involved constantly. He states, “We’ve established a set of synergy goals and measured ourselves against it and let everyone know how we’re doing.”
Cal mentioned that he has been dealing with a company where a transaction committee has been set up to closely monitor integration. He asks John if his CEO is very involved in acquisitions.
John indicates that our CEO is very involved in strategy and transaction execution, including being very good at setting the direction for our team and expecting execution. John further indicates in terms of formal integration status reviews, his expectation is that they will be monthly. The acquired company will quickly become part of the monthly reporting process.
Cal asks the speakers to touch on lessons learned from past integrations.
Larry answers first by happily admitting that he hasn’t had many problems. His only complaint was due to a “time issue” in which his company paid too much for a company that was in its prime at the time of purchase.
John brings up that it can be difficult to manage highly distributed development teams, particularly if the acquired business is very small relative to the acquiring company. It can make it very difficult to create a feeling of “one team”, and make retaining the acquired talent difficult.
Larry steps in to agree with John, bringing up an example from his own experiences when having a spread out team was difficult to localize.
From Left to right: Cal Smith, Larry Margolis, and John Gamble