Back to Basics – Step 7: Day 1 & Change of Control

Back to Basics – Step 7: Day 1 & Change of Control

M&A integration: Challenging to deliver, yet not complicated to understand. Success comes down to a few basics. Often missed or mis-applied, they are easy to spot in hindsight. To succeed, you must keep them in sight throughout the tumult of the deal. Over 20 years, on over 100 engagements, Beyond the Deal has fine-tuned its approach to integration design, planning and execution. Sharing this knowledge has created a learning dynamic. If you are preparing for your first integration or looking to improve your own approach, this series of blogs will outline BTD’s thoughts and learnings on the basic steps. You can access the entire set of posts and podcasts in this ‘back to basics’ series here.

Step 7: Day 1 & Change of Control

A beginning is a very delicate time. (Dune, 1965, Frank Herbert)

Deal negotiations are all-but complete. Preparations for managing the transaction are underway. Your post-close plans, including communication and engagement with staff and customers are all in place. You have initiated sound processes for tracking and governing status, risks and issues, costs, and benefits. There is a set target date for deal completion. Day 1 follows a few days later[1].

Okay, then. All that’s left is to plan the first days of post-close activity.

Post-close activities fall into three (sometimes overlapping) phases:

  • Day 1
  • Change of Control
  • Value Creation

Each phase has a specific purpose. This applies to ‘Day 1’, which often lasts a week or more. Change of Control then follows, the most vital activities of which should start immediately post-completion.

DAY 1: CREATING A FIRST IMPRESSION, SETTING THE TONE

Day 1 is a pivotal moment in the acquisition and integration process. It’s the ‘neck’ in the hourglass. All previous planning and preparation come together here. After it, the work expands to ensure a smooth change of control and value creation. Most executives know that the main activities on Day 1 are to introduce yourselves as the new owners, confirm leadership roles, and outline your plans both short and long term.

Do not forget, however, that all these are in service to a greater purpose: to build credibility and trust in you and your plans; and to reduce the fear and uncertainty that travel along with any acquisition.

Here are eight tips to help you get Day 1 right. Use them as a scorecard, not a checklist[2]:

1. Plan meticulously. Any mistakes or logistical problems can do hard-to-unwind damage. Use a ‘red team’ approach to stress-test Day 1 plans. The schedule should define meetings and activities on an hourly basis across all customer and employee sites.

2. Use your post-close objectives, benefits, operating model and plan to inform your story to employees, customers and the market. Consistently. Individuals desire the ‘Four Ps’: Your purpose in acquiring the business; a picture of what the future holds; your plan for them to get there; and their part in the journey; what it means for them. Your hard work in post-close design and planning (as described in previous posts in this series) will provide much of what you need.

3. Focus on them, not you. Most acquirers spend too much time on Day 1 talking about how wonderful they are in an attempt to win people over. Often this translates as ‘We are superior to you, aren’t you lucky we bought you?’ This not only starts the new relationship off ineptly. It also misses a great opportunity to tell them the real story:

‘We are excited to have you on board. You, the acquired firm, bring great capabilities to the new combined business. We value having you and hope that you are excited, too. And we plan to listen.’

Rather than being the losers, help them understand how together everyone will win.

4. Confirm organisational leadership from Day 1, clearly. As much as possible note any immediate changes to branding, processes, delegations of authority. The more certainty you can provide around what people need to do ‘today’, the better. This includes simply saying ‘continue as you have been’ where it’s true. Nevertheless, simple guidelines can help confirm, e.g., what company name to use on calls, who approves external spend, and especially how to respond honestly when customers and the media have questions. Which they will – stated and unstated.

5. Be honest, avoid making promises you may not be able to keep. All too often we hear acquirers tell their new teams, ‘Don’t worry, nothing is going to change.’ Many times this is well intended and ‘true at the time.’ If, however, you are forced to retract these commitments, it will be extremely damaging to your credibility. And that damage will accrue to you, personally, as well as to the management team as a whole. Even in seemingly small matters like holiday planning. It can be tempting to delay or defer announcing bad news. This is rarely a good idea – remember, most dissatisfaction is caused by uncertainty, not bad news. It may be reasonable to discuss high-level objectives and timelines while providing a firm date on which you’ll be able to provide more detail. With any communication, always ask yourself first: ‘Will this information raise or lower the level of fear and uncertainty?’

6. Cover all stakeholders, even if this takes several days. Day 1 activities often stretch over several days. Here the need for careful orchestration will test the best planning. You must ensure that everyone has had an opportunity to hear and react. Plan for a ‘second viewing’ of your Day 1 presentation and Q&A for individuals on a different shift pattern, or out sick or on holiday. Similarly, it may take several days to complete all your 1-1 conversations with key customers. The time spent will be worth it.

7. Demonstrate a new culture and expectations starting on Day 1 If you intend to integrate them fully into your organisation (good thing you designed the post-close Operating Model for the combined business early!), consciously ‘dial up’ the presentation of your core values and behaviours. Use real stories and involve employees to whom the new team can relate. Send clear messages about what will change going forward. Listen. Then listen some more. Practice silence in response to challenges. Any sign of defensiveness will only reinforce concerns. Too many executives try to use logic to overcome concerns. At these moments it is emotions that are in play.

Besides increasing clarity about the future, this will also help acquired leaders ‘make their decision’ about whether this new world is right for them. Part of Day 1 is to push people to make the personal, emotional decision either to sign up or to move on. If they decide to leave, it’s almost always better for them to do so quickly, and for you to help them do so painlessly[3].
Establish ongoing communications channels immediately. Modify as conditions evolve. Communication does not stop on Day 2. As prescribed in our last post[4], you should have a comprehensive Communications and Engagement Plan. Day 1 is just its start. On Day 1 let customers and employees know where to go with questions and concerns, and when they should expect updates.

ACHIEVING A SAFE CHANGE OF CONTROL

This second phase of activity has two primary purposes, and typically lasts 1-3 weeks:

1. Confirm full control of the key operational levers. This includes not only bank accounts but also access to mission-critical IT systems, office and manufacturing facilities, customer and supplier relationships, etc. In the case of a carve-out, you must assure continuity of any remaining support provided by the parent company vendor (e.g. TSAs and Supplier Agreements)[5].

2. Ensure safe and legal business operations. Regardless of how productive your due diligence, leadership conversations and site visits have been, you have missed something. Examples we’ve seen shortly post-close include:

– IT systems where former business owners still have access;
– Waste emission permits that haven’t transferred across (making your operations immediately illegal);
– Building passes that fail to allow employee access;
– Key employees with no contractual notice period requirements resigning en masse;
– Practices with clear safety risks to employees or others;
– Unrepaired or unmaintained facilities resulting in illegal working environments;
– Utilities shutting off vital services to a new ‘unknown’ acquirer;
– Insurance coverage ceasing on sale to a new owner;
– Departing administrative staff holding all bank account access;
– Loss of access to critical cloud-based IT applications.

The best way to catch these is, of course, during due diligence. But you’ll always miss some. Learn from your mistakes and react quickly when these arise. Regardless, conduct and document formal safety, facilities and cyber-security audits within the first few days post-close.

Once your Day 1 and Change of Control plans are complete, you are in a good position to kick off your value-creation programme. A successful Day 1 generates confidence and goodwill across staff and customers. While the ‘heavy lifting’ is still to come, a solid Change of Control phase will help ensure smooth business operations along the way. Lack of effectiveness in these phases can permanently impair value creation. Customers may defect to competitors. Employees may be unwilling or unable to support your plans. They may find themselves spending all their time fighting fires. You may well be called out as the arsonist.

“But wait! What about the ‘100-Day Plan’ we hear so much about? When do we create and run that?” You don’t. At least not in that form. BTD has found little benefit, and many traps, in building a plan predicated on an arbitrary date. As we’ve discussed throughout this series[6], all deals are different, the benefits usually differ, so your integration programme should reflect those differences. Much of a typical 100-Day Plan should find a home either in your Day 1, Change of Control or Value Creation Plans. If it doesn’t, ask yourself whether it needs doing in the first place. To those who claim that a 100-day deadline generates energy and momentum, I respectfully disagree: Project plans don’t generate momentum, leaders do. If you’re relying on a plan to help these leaders build engagement and commitment for your integration, it should be a dedicated plan such as that we discussed in post 8 of this series on Communications and Change Management.

 

Congratulations! You’ve successfully completed a positive and energising Day 1. The business is stable with you in control. In the final post in the series, I’ll discuss aspects of managing integration and improvement to deliver the value promised by the acquisition.

And that was the whole point. Right?

 

As a specialist firm with a senior team and over 20 years of experience, BTD is providing the new thinking, advice, resources and tools to help businesses get the most out of their M&A, divestment and alliance activities. If you think we can help you achieve your goals, give us a call.

 

[1] This scenario of course assumes no regulatory approval is required.

[2] For a more detailed treatment, see Leading the Deal, Moraitis & Keener, 2019

[3] This doesn’t of course preclude a mutual decision for some to stay on in a temporary capacity to facilitate the transition, but it does minimise the number of leaders who will stick around without committing to the future, the worst of both worlds.

[4] https://btd.consulting/ma/back-to-basics-step-6-bring-people-along-the-journey/.

[5] Normally these should be activated well in advance of deal completion as part of their pre-deal separation programme. Evidence of this should form part of the Conditions Precedent.

[6] https://btd.consulting/ma/back-to-basics-step-4-planning-your-post-close-activities/.