May 2008 Why Aquisitions Fail What looks great on paper often succumbs to integration failure. Five mistakes to avoid. By Maxine Golding
It’s a far too familiar story: An acquisition that looks perfect for both parties — great synergy, strong management teams, an industry stalwart entrepreneur joining forces with a resource-rich media firm. The future looks bright, indeed. Yet one year later, the acquisition has fallen far short of its intended goals, and the entrepreneur is gone — probably waiting out a noncompete.
The issues that can thwart a successful acquisition integration are as complex and varied as the people who make it happen. However, having a plan in place that encompasses these four key elements can go a long way toward ensuring a smooth transition.
Synergy: How will the acquisition fit with existing products, organization goals, revenue goals and cost efficiencies?
Strategy: What actions must be taken to ensure the show’s future health?
Systems: What resources need to be tapped to support the integration?
Culture: How will the two organization’s cultures be embraced to best effect?
Even experienced exhibition executives can, and have, misstepped during the integration process. For what looks great in theory still has to be put into practice.
Mistake #1. Lusting for an acquisition, no matter the fit. Kerry Gumas had to learn not to fall in love with the businesses he considered acquiring. Too often, admits the President and CEO of Questex Media Group (www.questex.com), a dynamic kicks in between buyer and seller that drives both parties to conclude a deal. “You have to be clear-minded that there’s a business and cultural fit — and know when to walk away from the table,” he says.
How must the executive team at the Society of Manufacturing Engineers (SME, www.sme.org) have felt when it heard that Reed Exhibitions Canada was selling seven manufacturing technology shows? The trade show products offered great value and advantages — a larger and improved presence for SME, greater visibility for components of its strategic plan including its commitment to education, and the chance to increase member engagement. Because SME’s mission is to advance manufacturing through education, publications and events, it was an easy acquisition to fall in love with.
For SME, it also made practical sense. The association has excelled by following a concept of regional bases, with shows like EASTEC and WESTEC. These advanced productivity expositions almost parallel the Canadian shows: for Western Canada the focus is on oil and gas; for central Canada, it’s automotive; and in Quebec, it’s aerospace and pharmaceuticals. A national event could never capture what works for each region.
Yet “there was probably more to integrate than we realized at the time,” says Gary Mikola, Director SME Events, especially in the area of the human resources. That’s because Reed staff came with the acquisition, and many were “long-time purists, which can be a difficult proposition,” says Steve Prahalis, General Manager, Canada, and formerly President of Reed Canada. “Moving to SME allowed us to start to recruit folks for multi-dimensional careers — with membership, foundation work, certification and education. The event platform is a wonderful way to promote all SME activities.”
Mistake #2. Delaying decisions until the acquisition is completed. Due diligence is not just an exercise to confirm what a company is buying, says Eric Lisman, Executive Vice President of Corporate Development, Advanstar Communications (web.advanstar.com). It’s the time to determine how a show will work within the new organization. That’s when the business head and department leaders overseeing HR, IT and finance must put together an integration plan.
“Many companies, however, don’t have these internal resources,” he says. “They have to rely on consultants for due diligence, who don’t know their company well enough to tell them where the acquisition needs to go.”
It’s during due diligence that Gumas closely examines three areas: sales, marketing and audience development, and considers how to work with the management team to improve processes and performance metrics. What he can’t get, because of the required confidentiality agreement, is direct feedback from attendees and exhibitors. That has to wait for the acquisition to close, when he can more deeply research the customer base.
He does, however, share the results of due diligence with the management team, pre-acquisition. This working session on the management plan for the first 100 days includes how people and resources at both Questex and the acquired organization will be utilized, and what milestones will be achieved.
“We do this specifically before closing because it’s a way to eliminate potential sources of disagreement, disappointment or misunderstanding later on,” Gumas says. “Everyone understands how we’re looking at the business, and that goes a long way in taking some of the mystery out for the entrepreneurs who remain with us. It becomes as much their plan as our plan — we remove ‘them’ and ‘us.’ ”
Mistake #3. Delaying actions that keep staff on edge. In a perfect world, an acquisition would be integrated on Day One. “Every delay comes back to haunt you and translates into a missed opportunity,” says Neal Vitale, President and CEO, 1105 Media. “So you need to make changes cleanly and decisively and move forward immediately with a new game plan. If things drag on and are not clear, people become confused.”
That’s why talent and relationships are key issues to tackle immediately.
Gumas prefers to maintain the management team, with the entrepreneur founder (whom he has already identified as “like-minded”) leading the acquired operation. It’s a model Don Pazour, CEO, Access Intelligence (www.accessintel.com), doesn’t usually endorse. In fact, one of his acquisition rules is: If you want an acquired business to thrive in its new home, fire the owner. “What makes an entrepreneur does not make a corporate business manager,” he says.
Yet he chose to break his own rule when he bought The TradeFair Group, retaining Sean Guerre as President and CEO. “We were buying management, as well as the assets,” Pazour says. “Sean is a relatively young man with an incredibly small ego for an entrepreneur, and he had a partner who wanted to cash out. We gave him a much bigger sandbox in which to play.”
The second a deal is announced, staff will be rightly concerned about what it means to them. “It’s painful when human beings lose their jobs and their lives are messed up,” Pazour says. “If you’re buying an entrepreneur’s company and not keeping the bookkeeper, who is his mother’s neighbor, you don’t spring it after the deal closes. Let people know they’ll be released by a certain date. Don’t extend the period of uncertainty.”
No detail is too small to staff. “It’s amazing the questions they raise, especially about benefit issues,” says Lisman. “They assume the worst, create anxiety among their co-workers and can’t do their jobs.” Make the announcement, he advises, and then sign up people for individual appointments with human resources staff that very day or the next. Never let them stew for more than one night without an answer.
Pazour warns against two scenarios: When acquirers don’t quickly make the moves they planned, like cutting below-par performers, they lose value-building during the critical early days. And, if it makes sense to eliminate people and structure the business a particular way, do it when there’s objectivity. “As time goes by, we become emotionally connected with people and processes,” he says. “Get the unpleasant stuff done before you establish emotional ties.”
Nearly as important as people is data. It’s imperative to integrate media platforms that supply information, networking and marketing for an industry or audience, in order to continue a level of service. SME’s purchase agreement specifically outlined its very first hurdle — replacing hardware and software that were proprietary to Reed.
All acquirers want their own systems in place as soon as possible to deliver everything from registration to invoices “their” way. “That means first figuring out the overlaps before you can move forward,” says Vitale. “It can be disruptive if people are going in different directions,” he notes. “But you’re moving so fast at that point that we can fail to do a good job informing and educating in a formal fashion.”
Mistake #4. Overlooking the “culture” shock. When for-profit 1105 Media bought FETC, an educational technology conference, from a nonprofit organization, there was a considerable difference in mentality, says Vitale. “They had all the right goals, but not the tools, resources or experience that a forprofit media company can provide. The asset had great strengths but was not being fully maximized.”
Prahalis, who came to SME from Reed, makes the opposite case. It was refreshing that SME stayed true to its mission, rather than just maximizing the bottom line, he says. To make sure those in the Canadian operations embraced SME’s mission and understood the objectives, he and Mikola made sharing information and learning from each other their top objectives during the first year of SME ownership. Every quarter, the Canadian team visited the headquarters office and its staff of 150. They also participated in the society’s “Power of Lean” program throughout 2007, whereby SME revised its organization-wide process map and tools. The dual activities — integration and process streamlining — helped SME evangelize its mission and culture, as well as bring the new team into the fold.
Pazour takes a different slant. “I increasingly believe that those of us who manage private-equity companies and are in multiple markets have to be culture-tolerant,” he says. “The most important thing is to not destroy or damage the asset you bought, or lose the human element that makes the business tick.” For a company that operates in multiple markets, that means nurturing multiple cultures under a single corporate umbrella.
Lisman agrees. “The last thing I want to do is change the market-facing culture — how people interact with customers. If you do that, you’re missing the whole point of what makes a show successful,” he says. Advanstar’s many market cultures are indeed very different from one another — motorcycles to health care to fashion, for example.
The flip side — the internal culture — is another story. “When we buy a small entrepreneurial company, its measurement systems often aren’t very sophisticated,” Lisman says. “We consider that cultural, and it’s important.” Advanstar wants business decisions to be based on facts and have accountability, so it will incorporate internal measurement and tracking processes as soon as possible.
The way Skip Farber, CEO, WSA Global Holdings (www.wsashow.com), looks at it, though, the real cultural differentiator is whether the acquired and acquiring companies are revenue-driven or cost-driven. Is the talk about being a growth company really lip service? Or is the true focus on controlling or cutting costs? “Economic circumstances or competitive situations will dictate that philosophy,” he says.
Mistake #5. Attempting to fully integrate the acquisition too quickly. Rarely is a show acquired on the closing day of the event, so new owners must carefully calibrate the actions they want to take. “The processes that drive the show can’t come to a screeching halt because the show is changing hands,” Vitale says.
When 1105 Media bought FETC just prior to the event’s staging in January 2007, it had virtually nothing to do with the first show under its ownership. Its impact began to be felt in the first cycle, as old contracts expired and new vendors were put in place. The 2009 event — fully two cycles with FETC in-house — will finally display 1105 Media’s full stamp. All legacy activities will have been updated, and new teams put in place. “Buying right before a show runs is probably the ideal timing,” he says.
Clearly, delivering new products and services to a customer base takes time. “You can ‘white board’ the opportunities. But the practicalities of prioritizing and executing — while bringing different cultures together — can take one-and-a-half to two show cycles,” Gumas says. “You will, though, come out on the other end with a strong strategy and integrated team.”
The process is further slowed when acquired shows are not produced annually. Because the Canadian shows it purchased run in alternate years, SME knew it had a two-year window to fully integrate them. But the fact that the customer base was only touched once over a two-year period posed a critical challenge. All the buyers, sellers and strategic alliances at the six shows had to be fully introduced to SME, so that management could concentrate on improving the show experience at the subsequent event.
Clearly, SME needed to make some moves early on. Within 90 days, Prahalis’ team at SME held close to 75 faceto- face meetings to ensure that every major customer or partner understood what SME brought to the table and how the overall experience would improve. At the first event held under its banner in May 2007, the society introduced educational and networking components, including an SME 75th anniversary session, all of which materialized quickly because of the society’s credibility.
Prahalis, though, faced an organizational challenge at the same time: how to mobilize a staff of less than 15, where before he had 30. He had lost bandwidth, and no longer had the option of pulling people off other Reed shows to work on his. As the Canadian team scaled the learning curve, they began to identify resources and systems in marketing, operations and finance at SME headquarters that could support strategic growth and revenue generation. “By adopting some of their templates and processes,” Prahalis says, “we free up a lot more time for creativity, key account management, sponsorships and strategic alliances.”
Maxine Golding is an award-winning writer and editor with more than 20 years of experience in the meetings, expositions and hospitality industry. Time Changes Relationships…and Agreements When Questex Media Group acquired the AIIM International Conference & Expositions from its association owner more than six years ago, the two entered into what they both thought would be a long-term strategic alliance.
The strategy to co-locate AIIM with Questex’s On Demand Conference & Expo was an objective both Questex and the association’s management shared. “We literally set up an office right next door to the association,” says Kerry Gumas, President and CEO, Questex. This ensured continuity of management and sponsor relationships, and it proved to be effective for the first year and a half.
While Phase I met with success, difficulties emerged during Phase II. As the industry suffered significant consolidation, the partners diverged in their views of what needed to be done to grow the event. Despite their differences in identifying new audiences and categories of exhibits that were nontraditional for the association, both Gumas and the association executive maintained a very friendly relationship. Still, strategy meetings led to many more discussions, and finally to a great deal of disagreement over a two-year period.
There was only one way to resolve their differences, and that was to reshape their relationship and negotiate a completely new agreement. The favorable outcome responded to the association’s push on commercial points, and Questex’s need to introduce new content areas into the program and show floor.
“It’s an interesting example of an acquisition where things went right and wrong,” Gumas says. “One of the lessons I personally learned is that, although these are difficult relationships to negotiate, if you work hard and get it right, it can be extremely productive for customers, the association partner, and show management.”
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