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Mergers and Acquisitions

The Value of an Outside Perspective
Date Published: July 14, 2011
Publisher: DONALD BIELINSKI, JAMES McCLUNG, ROGER SWEENEY

Looking to Interim Management as a Key Component of a Successful Merger/Acquisition Strategy

By: Donald Bielinski, James McClung and Roger Sweeney- Managing Partners of SMB Operating Partners: experts in Change Leadership, providing clients with experienced high performance, C-level interim executives to carry out time-intensive assignments in a wide range of businesses.

Mergers and acquisitions have become a near daily occurrence as businesses strive to keep up with break-neck changes in the competitive landscape, including globalization, technological advances, global outsourcing and fluctuating economic conditions world-wide. Estimates indicate that in 2010, nearly 45,000 mergers and acquisitions were transacted around the globe.

Yet, research shows that between 50 and 80 percent of all acquisitions fail, while nearly 70 percent of mergers fail to achieve their anticipated value. In-depth reviews of M&A activity also have pointed out that nearly two-thirds of newly formed companies perform well below the industry average, signifying that these firms may have been better off before they merged than after.

The principal failure point in all of these transactions: talent management issues.

While the pace and importance of M&A activity is not likely to slow down, there is an easily accessible solution that can drastically improve its success rate. Interim executive management is an often overlooked strategy that can make the difference between success and failure in mergers and acquisitions – and in nearly any significant change management situation.

Case in point, a mid-sized company in the Asia-Pacific region found itself faced with a management crisis in which it needed to immediately replace top management with very little notice. The business was at significant risk since this disruption would be an opportunity for competitors to poach clients and key employees. And as expected in most crisis situations, time was of the essence. While the management crisis cited in this example was not the direct result of M&A activity, it does represent a situation commonly encountered during the post merger integration process.

The company's initial solution was to promote from within, using an executive from a different business unit who would receive additional support and assistance from the non-executive chairman. While the promoted executive was the best available internal solution, he had only led businesses one-tenth the size of the one he was now expected to run. The hope was that this executive would be able to leap-frog years of experience and be named CEO in short order. Unfortunately, the promoted executive was being asked to do the impossible, and while the results were not catastrophic, they were far less than optimal.

The company quickly changed direction, brining in an interim executive while simultaneously executing an external search. The interim executive had decades of experience leading firms of similar and much larger size as well as in managing crisis situations. He was able to immediately unify the management team around key initiatives and quickly reverse unfavorable trends. Six months later when the permanent CEO was hired, the firm was out of crisis mode and accelerating in revenue and profits.

This case clearly illustrates how immediate use of an interim executive would have avoided business disruption and loss of economic value to the firm. The advantages of bringing in an experienced, outside executive to guide a company through a period of significant change are clear and straightforward. Those advantages include depth of experience, speed to success, results-driven objectivity and accountability as well as reduced risk and fixed cost.

Depth of Experience
On paper, most interim executives look overqualified – like overkill for the situation they are hired to address – but in reality, their depth of experience enables them to more quickly address business issues and implement effective, proven solutions. They've already "been there, done that," successfully, so they more immediately know what needs to be done and can jump start mission critical initiatives. A common misperception is that an "overkill" or "highly overqualified" candidate is not used to getting his hands dirty. What's more, existing management may question whether the interim executive can be effective in a smaller company when his or her depth of experience is with a larger firm. In reality, when an interim executive is carefully matched to the organization, its people and its issues, he or she will be able to leverage that depth of experience while not being bridled by internal politics and group think to accurately interpret the path to success and simply get the job done.

Speed to Success
Speed to success is more important now than ever. Any business facing a transition challenge must have highly qualified senior executives in place, immediately, to lead the change. Yesterday's recipe of promoting a less than qualified candidate, waiting 6 to 9 months to complete an executive search or hiring a strategic consultant is no longer the best solution given the pace of competition and the complexity of today's challenges. There simply isn't time or money for on-the-job-training for under-qualified internal candidates, or the learning curve and time associated with bringing in an outside permanent replacement. An interim executive can be on the job within days, immediately taking control of the company to fix problems and achieve sustainable results while avoiding business disruption and loss of economic value for the firm. Unlike a consulting role that is mostly advisory in nature, an interim executive will make recommendations and then roll up his or her sleeves and get to work addressing issues and implementing solutions, seeing the project through until completion.

Results-Driven Objectivity and Accountability
Corporations desperately need people with a vested interest in achieving results whose experience is in line with the business opportunity. Interim executives are hands-on senior managers with industry experience matched to specific measurable business objectives to ensure the right leadership is in place to succeed with quality and speed. Fast, thorough integration is critical to ensure that synergies are realized and that there is not a cultural implosion. What's more, interim executives are goal oriented and have no vested stake in winning a battle to lead post integration and pose no threat to the careers of existing management. In a merger situation where two CEOs may be at odds, brining in an interim executive who is external to the companies can help reduce conflict and greatly improve the transition process. To ensure interests are aligned, interim executive contracts are often structured to include success-based incentives tied to operational or performance benchmarks.

Reduced Risk and Fixed Cost
In all phases of M&A activity, interim executives provide insight and active involvement, seeking to minimize risk and maximize returns. They are catalysts for change. Indeed, firms that do not undertake recurring acquisitions will generally lack the talent and infrastructure to execute an effective identification, negotiation and/or integration process – almost always losing significant economic value in the process. Interim executives provide companies with access to critical business skills without incurring excessive overhead or fixed, permanent costs. They work with corporate boards and internal executive management teams to define expected outcomes, identify and mitigate risks, develop milestones and transition metrics, define the end business and groom long-term management. In fact, an interim manager's ability to mentor and transfer knowledge to existing executives is invaluable. Their leadership role, combined with their depth of experience and outside perspective places them in an ideal position to coach and mentor the on-going executive team, preparing them to become stronger leaders and to make better decisions.

Too often, firms risk the 'trial and error' process of relying on the available talented, but inexperienced, internal executives or rely on strategic consultants for operational advice. A common misconception in these scenarios is the belief that corporations cannot bring just anyone in from the outside to run the company for an interim period. Yet in reality, an outside, objective perspective is often more valuable. In addition, while consultants can help design an integration plan, generally they lack the capabilities to actually implement the desired steps, which is where an interim executive comes into play.

SMB Managing Partners are executives solving transition challenges. They use an innovative team-based approach that involves an on-site operating partner coupled with an SMB Managing Partner to ensure a speedy objectives-based high quality outcome for each assignment.SMB Operating Partners is located at 401 N. Michigan Avenue, Suite 1300, Chicago, IL 60611. For more information, please visit www.smbop.com or call 312-924-1547