Using Clean Teams to Accelerate Synergy Capture

Mark Herndon headshot
By Mark Herndon
Chairman, M&A Leadership Council
May 11, 2016

We recently introduced the term “deal-count paradox” to highlight the condition of sophisticated acquirers with lots of deal-count experience who still struggle with fundamental disconnects in M&A processes and skill sets that lead to M&A value erosion. (See Don’t Fumble on the Goal Line.)

"The pre-closing data most critical for assessing and planning a fast, combined and successful post-close go-to-market campaign was almost entirely restricted by legal counsel.

There are many factors driving this paradox, but among the most problematic is the painful tendency to screw things up before the integration even has a chance to get started. The fact is that the vast majority of acquirers can and should improve what they do during the critical hand-off from due diligence to integration.

One recent client experience highlights this need. M&A had historically been an important growth strategy for this company, and their total deal count was in the range of 60–70 completed acquisitions. A recent, renewed push for M&A growth led to some challenges, and in response, we were engaged to lead an internal M&A capabilities development initiative.

As a part of that review, we surveyed top M&A people across the global organization, and one question stood out as a key indicator. We asked, “To what extent does our due diligence process provide a seamless setup and handoff to integration?” Over two-thirds of the M&A team members surveyed essentially said the handoff was ineffective, non-existent, too little, too late, and without adequate continuity or knowledge transfer. Unfortunately, findings like this are all too common.

So this week, let’s discuss another one of our “7 Essential Strategies to Ensure a Successful Handoff from Due Diligence to Integration.” Please refer to this downloadable resource for a briefing on the basics of Strategy #5, Use Clean Teams to Accelerate Synergy Capture and Manage Restricted Data Pre-Close.

To summarize, a clean team is a special SWAT team dedicated exclusively to a pre-closing role in reviewing, managing, reporting on, and, in some cases, conducting pre-close planning on data or issues that are heavily restricted pre-closing due to anti-trust laws and the risks of exposure to anti-competitive information if the deal doesn’t close. Strict confidentiality and non-compete agreements are required for each member of a clean team, to the extent that buyer company staff would ordinarily be prevented from returning to a day-to-day operational decision-making role if the deal doesn’t close. For these reasons, please seek the advice of experienced legal counsel. This also explains why most acquirers typically engage outside advisors for this task. In spite of these restrictions, using a clean team is a proven and legitimate strategy to support pre-closing integration planning and to accelerate the completion of critical tasks and objectives.

Here’s just one actual client example to help you evaluate the potential of clean teams to accelerate and add value to your next deal:

A products distribution company was buying a compatible services company in a very strategic product-line extension deal. Both companies were well-known entities in several overlapping market segments and customer accounts, but in an almost checkerboard pattern, each party had a number of distinctive strengths and dominant positions in various sectors or client verticals. Success in this deal was all about revenue growth and how quickly their combined capabilities could be bundled to more effectively and more profitably add value to common customers in ways that competitors could simply not match.

The pre-closing data most critical for assessing and planning a fast, combined and successful post-close go-to-market campaign was almost entirely restricted by legal counsel. There was simply no way to access, much less determine, what to do about sales, pricing, margins, customer accounts, optimizing the sales organization, or requirements for a coherent post-close value-proposition – except through a clean team.

A small team of carefully chosen internal resources and external advisors were tasked with performing the role of a comprehensive go-to-market integration task force, entirely pre-closing. Working under legal counsel’s direction at an off-site location and with strict confidentiality agreements, this team reviewed key data, aggregated pre-closing “sanitized reports” for the buyer’s leadership team and prepared comprehensive sales integration and post-closing objectives, plans and communications.

After reviewing the clean team’s comprehensive plans immediately upon closing and Day 1, the buyer’s leadership team made modest edits to the plans and prepared to host the key representatives of both sales organizations on Day 2 for a detailed review and confirmation of the plans. By Day 3, the combined sales organization was being trained and prepared to launch the combined plans under a combined, interim sales organization and process.

The results? An immediate market impact, near-term booked sales that validated the customer value-proposition, and revenue synergies above initial estimates.

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