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How do you drive change post deal?

Richard Lindsay | 24 January 2024

Whilst companies innocently enter the M&A process with the best intentions, they ultimately fall victim to common traps, due to divergent views of them and their investors. One of them being the role of leadership.

Here, Richard Lindsay askes, does your portco leadership have change as a priority?

It is perhaps noteworthy that 60% of PE firm surveyed by AlixPartners stated they believe the leadership within their portfolio companies role is to be change agents, while portco leaders see themselves as being team builders. Highlighting the need for clear expectation setting and real change expertise in those tasked with leading a newly acquired business.

Whatever the investment strategy, there is no denying that mergers and acquisitions at their very core are all about change. Of course, needless to say that EBITDA-multiples don’t grow themselves!

Growth and value-creation are the commonly cited motives for PE houses undertaking an acquisition, yet these are just different words for change and can only be born from change. It’s a mystery then why executives in PE backed businesses largely overlook the value of change-management and its assignment to the hands of change-experts. This is a potentially a costly oversight when we consider how incredibly easy it is to get wrong and how disruptively complicated it is to put right. Despite the transformative impact that investment has on all businesses, it’s often baffling how little emphasis is put on assessing executives’ ability to deliver change management… a mistake with potentially disastrous consequences.

Where a business stands at the other side of change is ultimately a measure of how well it was managed. The simplest way to view change is like a project but a complex one, particularly as the larger the investment, the more processes, technology, people, structures and culture can (and indeed, must) change.

As capable as you may believe the people you’re acquiring are, it is inadvisable to put them in charge of change management without robust assessment. M&A is obviously a serious business and change needs dedicated leadership, therefore it is also not sensible to disguise it as a ‘collective responsibility’ for internal teams to get stuck into.

Invariably, it is when we start seeing what is not happening, that people are not embracing new culture, work is not getting done properly and that growth isn’t happening that it is realised that change is not being implemented.

Remember, change management shouldn’t be seen in terms of a to-do list or tasks, rather an approach to make sure the people and challenges are being addressed.

The identification of skill gaps and barriers should be a fundamental part of the due diligence process and priority given to reconfirm/reassess them immediately post-acquisition. The sooner those have been identified the faster mitigation can begin on their destructive power. Whoever said don’t sweat the small stuff clearly never bought a company as it’s the small things that wreak havoc on a deal later. As an example, even something as seemingly simple or innocuous as payroll moving from weekly to biweekly can lead to catastrophic effects on employee retention.

Our advice would be this…

  • Look at what is high priority to employees and ensure they are dealt with quickly – again, people are key!
  • Examine and gravitate towards fixing the problems that fundamentally underpin your investment thesis.
  • Don’t under-estimate change, ensure change-experts handle it.
  • Do it early, remedial change is horrible and painful.

 

Interested in learning more about how we’re resourcing PE firms with change agents  or if you’d like to speak to one of our consultants, please contact us.

 

 

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