| Mergers, acquisitions, and downsizings are difficult events for all involved. Transitions also can spark organizational regeneration, and there is a proactive opportunity to improve how work is approached and conducted. Many come to recognize that in crisis there is opportunity.
In the article below, Mitchell Lee Marks focuses on seven ways in which executives can survive--and even thrive--during organizational “MADness:” Mergers, Acquisitions, and Downsizings. Dr. Marks, head of JoiningForces.org (www.joiningforces.org) in San Francisco, regularly advises executives on managing mergers, restructurings, and other transitions and on developing organizational cultures to achieve desired financial and strategic objectives.
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Organizational MADness: the Personal Impact of Mergers, Acquisitions, and Downsizings
By Mitchell Lee Marks, Ph.D.
Organizational MADness--the impact of Mergers, Acquisitions, and Downsizings on short-term employee well-being and long-term organizational effectiveness--affects most workplaces. Despite the frequency of merger, acquisition, and downsizing activity, most organizational transitions fail to achieve their financial or strategic objectives. Mismanaged mergers, acquisitions, and downsizings have negative--not merely neutral--effects on employee well being, work team productivity, and customer satisfaction.
The Health Side of MADness
Certainly organizations need to “rightsize” by eliminating unnecessary work and responding to economic, legal, technological, and consumer changes. Many firms can more rapidly achieve strategic objectives through combinations than through internal growth. If organizations did not change, they would not remain competitive.
MADness does not imply that organizational leaders are malevolent in their actions. In many cases, mergers, acquisitions, and downsizings are prudent business moves that enhance competitiveness and survivability in the ever-changing business environment. British Petroleum’s acquisition of Amoco was an essential strategic move in a consolidating industry. The airline industry’s downsizing following the September 11 terrorist attacks has enhanced the likelihood that carriers, and their hundreds of thousands of remaining employees, will endure.
A transition also can spark organizational regeneration. A CEO with the right mix of visionary and charismatic leadership skills can rally employees around the notion that the merger, acquisition, or downsizing is not only necessary response to business realities, but also a proactive opportunity to improve how work is approached and conducted.
A transition holds the potential to “unfreeze” the organization and its people, providing a rare chance to change corporate culture dramatically and reinforce a new way of doing things. Additionally, individuals can experience a personal form of renewal as a result of company transitions. Although many employees stay mired in maladaptive responses to the stress and uncertainty of a transition, others come to recognize that in crisis there is opportunity.
Based on my experience in observing and working with organizations of all sizes and from a wide range of industry sectors in over 80 of these events, I see seven ways in which professionals can survive--and even thrive--during organizational MADness.
Understand What You Can and Cannot Control
If I could use only one word to discuss the human side of organizational MADness, it would be “control.” What really scares people in a merger, acquisition, or downsizing is the perceived loss of control over their work life. Some interesting psychological research shows that when people perceive their control to be reduced, they assume it is eliminated.
When a merger or acquisition puts a company “into play” or when a reduction-in-force threatens the jobs of seemingly good performers, employees assume they have no control over their situation. This is why many talented employees conclude the only control they have is to walk out the door. The majority who remain, however, fixate on matters outside their control: “why doesn’t my boss tell me what is going on?” or “why doesn’t the CEO tell us his plan?
There are many ways professionals can exert control over their situation when confronted by a merger, acquisition, or downsizing. One is to seek information. Keep in mind that senior people may be very busy with the dual tasks of managing the transition while running the core business, so you may need to suggest a creative time to meet.
Learn What Is Going On Around You
Stop and think before you act, rather than do things in a hasty or uneducated manner. Talk with people, ask questions, get information and, in general, do a “diagnosis” of the situation in which you find yourself. Organizational MADness is anything but a time of “business as usual,” and you cannot assume you know what others are thinking or planning.
A senior director in a high tech company, a former client, was upset when she learned she was not nominated to participate on an important integration planning team. She called me to vent: “This must mean my career is over here. If they had any respect for me, they would have put me on the planning team.” I suggested she do some investigating before concluding she had no future in that firm. To her surprise, she found out that her superiors and the leaders from the buying company valued her work so highly that they did not want to distract her during this busy period by putting her on the transition team.
Learn What Is Going On Inside You
Stop and listen to your own self. What emotions are you feeling? What are you afraid of and what excites you? Determine whether you are in control of your emotions or they are in control of you. Most people turn inward during times of organizational MADness. Some individuals are afraid to come to terms with feelings of fear, insecurity, and even obsolescence. Others are afraid to express any sense of vulnerability, fearing that it may be used against them.
Many people who have never done so say that keeping a journal during a merger or downsizing is an excellent way to understand and control their emotional reaction to organizational MADness. Keep a notebook or tape recorder nearby and jot down or speak about your feelings. Before going to sleep, make some notes on how you feel about the day that just passed and what you anticipate for the next. Don’t criticize yourself or feel you are abnormal for having these emotions--they are perfectly normal and to be expected in a transition.
Be Tolerant of Those Around You
A merger, acquisition, or downsizing is an intense time for all involved. People whom you relied upon in the past--mentors, superiors, well connected co-workers--may not have much more information than you. And, many people will be going through their own stressful reaction to what they perceive as a crisis and simply shut down.
There is no master plan and no one has all the answers. The reality is that most mergers and acquisitions are consummated with a tunnel vision on the financials. Little work is done on planning what the integrated organization will look like until after the deal receives legal and shareholder approvals. This is one reason why so many mergers fail--buyers don’t know what they’ve acquired until after the deal is done!
Just when things seem to be going in one direction, they may shift to another. The most successful organizational transitions have important and beneficial mid-course corrections. So, stay loose and cut those around you some slack. Do ask for information, but don’t be surprised if what you receive is incomplete.
Do find out what direction the post-transition company is headed, but don’t react negatively if that direction changes. Think about it: it is better for planners to make a mid-course correction due to competitive, technological, or customer changes than to hold on stubbornly to a strategic course that is doomed to failure?
Be Tolerant of Yourself
You don't have all the answers, either. You need to cut yourself some slack also. This is especially difficult for executives who pride themselves on providing top-notch service to their internal customers and colleagues. You may have multiple demands from doing your regular business activities and contributing to the transition. You may need to learn some new ways of doing things, along with new ways of seeing and thinking about things.
Talk with your customers and ask if deadlines can be pushed back a bit during the transition period, or if certain tasks can be put on hold until the dust settles. Do indicate that quality and service remain foremost in your mind, but start a dialogue on determining what work now is essential and what work can be tabled. Reach out to colleagues and get support when you need it. Above all, recognize that you will make some mistakes as you embrace new ways of doing things in the post-transition organization; embrace the learning opportunity in these mistakes and move forward.
Tell It Like It Is
One of the most common problems I encounter in organizations in transition is the lack of upward feedback to leadership regarding whether the merger, acquisition, or downsizing is on course or veering away from its strategic and business objectives. The reason for this is quite clear: no one wants to tell the emperor he has no clothes.
Without accurate and timely feedback, leadership assumes “no news is good news” and stays the course. Only when small issues mushroom into major problems in productivity, profitability, or the retention of key talent does leadership get some inkling of the problems at hand.
Successful mergers, acquisitions, and downsizings require effective upward communication. Contribute to building the best possible new organization and to a culture in which openness and honesty prevail. Speak up, point out problems, and suggest improvements. You can be direct without being nasty.
Anticipate the Next Transition
Mergers, acquisitions and downsizings are here to stay in the managerial repertoire. Odds are you will go through multiple transitions during your career. That's just how the game is played these days. Use your head to keep abreast of events in your company, industry and the overall economy. If another company in your industry has been acquired, it is likely to set off a series of copycat combinations. If your company’s sales and profitability have been slumping, a reduction-in-force may well be in the offing.
Take Care of Yourself
All change--even change for the better--results in the loss of the status quo. When a merger, acquisition, or downsizing results in an organization that is better positioned to achieve its strategic and financial objectives than it was prior to the transition, you will experience some sense of loss and a disruption to your accustomed way of doing things.
In even the best planned and most carefully managed transitions, there will be disappointments and difficult times as you move forward. As a result, you need to manage your situation and your stress. Look out for yourself. Eat well, exercise, and take some down time.
One of the most potent stress management techniques during a transition is to vent and talk things out with a friend, family member or co-worker. Being in your organization at this time in its history can be a special event for all involved. It is possible that one plus one can equal three in a merger--with the combined organization being more than the sums of its predecessors.
A downsizing may be the bold move that is required for your leadership to turn the company’s fortunes around. Although most transitions fail to achieve their financial or strategic objectives--please do give your leadership a chance at making this one work. And, do your best to contribute to the transition while maintaining current business commitments. Make every day important and productive
Mitchell Lee Marks, Ph.D., heads JoiningForces.org in San Francisco (www.joingforces.org). He is the auther of Charging Back Up the Hill: Workplace Recovery after Mergers, Acquisitions, and Alliances (jossey-Bass Publishers, 2003) and regualrly advises executives on issues related to organizational change and transistion. He can be reached at 415.436.9066 or MitchLM@aol.com.
Global Science & Technology Has Acquired TMC Technologies
FOCUS initiated the transaction, acted as financial advisor to, and assisted with the negotiations as the representative of Global Science & Technology, Inc., established in 1991 to provide earth and space science, engineering, and information technology services to the Federal Government. TMC Technologies, Inc. is a fast-growing, veteran-owned, small information technology services firm with significant contract experience at the federal, state, and local government levels, as well as with commercial customers. Click here for the Global Science & Technology/TMC Technologies Web Tombstone.
Middle Market Intelligence Briefs
Sarbanes Oxley Implications for Private Companies: SEC Commissioner Cynthia Glassman spoke on this topic at the ACG National Capital Chapter 11th M&A Conference in McLean, VA on February 22nd. Dr. Glassman said, “You must consider SOX if your private company is going to be acquired by a public company." She admitted that the fixed costs of compliance are high for smaller firms and indicated that the SEC was trying to address that problem. However, she noted that “baseline requirements are people and systems with integrity.” She reinforced her point with another declaration: “We need systems and organizations with integrity embedded from top to bottom."
Public Company Acquisitions Under $50 Million Grow Dramatically: According to the March 2005 issue of Fortune Small Business, acquisitions of sub-$50 million companies made by public companies exploded from 322 in 1995 to more than 1,400 in 2004. The data was supplied by FactSet MergerStat, a mergers and acquisitions data firm based in Los Angeles. The article noted that such deals occur when large companies buy small, young firms to gain access to innovative products. [Editor Note: There are some large public companies that regularly and frequently buy smaller companies. Diebold, a $2 billion revenue firm traded on the NYSE, has completed 30 transactions with a cumulative value of $150 million (an average of $5 million per transaction) in recent years.]
Average Multiples Rise for Enterprise Values of $25-100 Million: Cash flow multiples for firms with enterprise values ranging from $25 million to $100 million rose from 6.4 in 2002 to 6.6 in 2003 to 7.4 in 2004, according to the January 2005 issue of the professional journal Mergers & Acquisitions. The data was reported by Brown Gibbons Lang & Co., though the article did not explain how it was collected. FOCUS has seen the same moderate increases in our work, but we must note that there are wide variations in cash multiples based on variables such as industry sector, company size, company margins, and company growth rate. There is one hard and fast rule, however--lower multiples apply to smaller companies.
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