INTRODUCTION: WHAT CAUSES POST-CLOSE CONFUSION?
Investors ask a lot of management teams during an add-on process.
I mean that literally.
Every new investment we consider means a long list of to-do’s that helps us get smarter on everything from internal finances to how the product works to which customers matter the most to the health and growth profile of the company’s market. Each item on that to-do list requires multiple pieces of data of information requests. By the time we finish our diligence, the company’s “data room” can contain thousands of pages and gigabytes of information.
So who gathers all this data? Well, we do some of it, but most of it comes from the management team. It’s a ton of work. Consolidating, organizing, and presenting this information isn’t just intellectually taxing. It takes a real physical toll on the management team, who essentially work two jobs during diligence: As members of the company’s “deal team”, they respond to investor information requests, cram their calendars with conference calls, and deal with frequent back-and-forth with lawyers, accountants, and consultants. And as executives, they still have their day jobs to attend to. Customer complaints, managing their teams, advancing opportunities in the sales pipeline, and fixing all the little daily operational issues don’t just stop because a private equity fund comes calling. The business doesn’t run itself.
By the time we finally close the deal, the management team feels like they just ran a marathon: They’re incredibly proud, but they’re also exhausted, and not in a rush to do it again anytime soon.
Given the fatigue, what happens next isn’t surprising.
After the deal closes, the team congratulates each other, takes a breath, quickly announces the acquisition to their organization, and shares a few slides at the next town hall about why the deal makes sense, who their new teammates are, and (maybe) a little on what the organization should expect next.
Then, after their 30-minute speech, the team gets back to work, expecting that their frontline employees are just as clear on the company’s new direction, strategy, and priorities as they are.
Do you see the problem with this?
While they’re hard at work building the case for an add-on acquisition and making the transaction happen, management teams are also creating a powerful story that showcases the business’s combined track record, the logic for bringing them together, and their plans for the future. They use the story, and the context they gain from building it, to close the deal.
And then they stop telling the story.
Everybody else - the managers and front-line employees who keep the business running – hears what happened, but they’re nowhere near clued into the detail on the why and what of comes next. It’s rare that the non-ELT members of the company feel clear on where the company is headed, how they’re going to get there, and what it’s going to take. And the confusion that results is a big problem – both for the company and its investors.
We at ParkerGale believe this post-close confusion is a major contributing factor to underwhelming results in the first year of a merger or add-on acquisition. Teams that skip the opportunity to repackage and share “the story of the deal” rob employees of the chance to internalize and adjust to the change that comes with any kind of organizational change. Without that adjustment, it takes longer to reorient the team’s work, focus on what really matters to grow the business, and culturally integrate the two teams – which is just a fancy way of saying “get people to work on stuff together.”