M&A in the Metal Service Center Industry a Case Study – Part Two

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M&A Activity

MetalMiner is pleased to invite Paul Glover of the consulting firm The Glover Group started in 1992 to help companies to survive the WorkQuake™ of the Knowledge Economy by improving workplace performance and increasing job satisfaction. Jay Frischkorn, of Strategic Profitability Consultants co-authored this piece. This is part two of a three part series structured as a metal service center merger and acquisition case study. You can read Part One here.

Post acquisition integration issues:

  1. When the acquisition closed, the Acquired Company’s owners immediately became independently wealthy and, therefore, had little financial incentive to participate in a successful Post Acquisition Integration Program.
  2. Based on the acquisition’s primary requirements that the Acquired Company’s market share and level of profitability be maintained, the previous owners were given three year employment contracts to continue as Operating Managers of the business while the Post Integration Acquisition Program was concluded and the Acquiring Company’s Management prepared to take control of the Acquired Company’s Operations.
  3. After the acquisition closed, the previous owners and the Acquiring Company’s Management Team discussed the integration process and developed the Post Integration Acquisition Program. However, the previous owners were allowed to continue to operate the company as if they had never sold it.
  4. Rather than appoint one Manager from the Acquiring Company to be in charge of the Post Acquisition Integration Program, the various Department Managers of the Acquiring Company were told to interact with the previous owners now Operating Managers whenever an integration or operational issue arose
  5. The Departmental Managers of the Acquiring Company had no direct access to their counterparts at the Acquired Company and all communications had to be routed through the previous owners.
  6. Sixty days after the acquisition closed, the Acquiring Company implemented the initial phase of the Post Integration Acquisition Program by beginning the integration the two companies’ IT departments and HR functions. Even though the Acquired Company’s previous owners were aware of and had been involved in the development of the Post Integration Acquisition Program, as Operating Managers they viewed this activity as the first attempt by the Acquiring Company to establish control over the Acquired Company’s operation and to implement the Acquired Company’s own policies and procedures.
  7. Because of their ongoing status as Operating Managers, the previous owners saw the entire Post Acquisition Integration Program as unwarranted interference and a criticism of the way they had and were operating the company. Therefore, as the Operating Managers they were able to passively resist the Post Acquisition Integration Program and encouraged all other Employees to do likewise.
  8. Because of the passive resistance of the Operating Managers and the uncooperative nature of the Acquired Company’s Department Managers, the integration of the two IT and HR departments took eight months to complete.
  9. Because of the need to maintain the Acquired Company’s established level of market share and profitability, the Acquiring Company tolerated the passive resistance of the previous owners to the Post Acquisition Integration Program.
  10. Within twelve months after the acquisition closed, in response to ongoing complaints about favoritism and discrimination from the Acquired Company’s Employees, the Acquiring Company implemented its own set of workplace policies and procedures.  Immediately after the Acquiring Company’s Director of Human Resources Department announced the changes in workplace policies and procedures to the Acquired Company workforce, all of the previous owners quit.
  11. A month prior to the previous owners quitting, 50% of the Acquired Company’s sales representatives left the company to start their own metal service center operation.  Within a month after the sales representatives left, 30% of the Acquired Company’s customers left to do business with the new company. This loss of revenue reduced the profitability of the Acquired Company to the level where the acquisition price paid for the Acquired Company was no longer justified.

Results:

  1. Two years after the acquisition, not only has the added value anticipated through the acquisition not occurred, but the acquisition resulted in the devaluation of the value of the Acquired Company because of the loss of key personnel and customers.
  2. The Acquiring Company has suffered a 40% loss in profit, a portion of which can be directly attributed to the Management Team’s loss of focus on the Acquiring Company’s business at a time when the economy required they devote their full attention to that business.  This loss of focus was caused by the time spent by members of the Acquiring Company’s Management Team in attempting to overcome the Acquired Company’s resistance to the Post Acquisition Integration Program.
  3. The Acquiring Company’s primary competition has taken advantage of the turmoil caused by the acquisition to establish a presence in the Acquiring Company’s home territory.

Part three will cover a best practices approach.

Paul Glover and Jay Frischkorn

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