Reorganization post acquisition
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I would be curious to have your views, based on past experiences or articles, on the efficacy and reasons for big reorganization post-acquisition or why some companies on a regular basis would restructure their managerial/executive levels or organization (operations nature or geography split)? Do you think it’s good? (advantages vs disadvantages)
We are gong through this right now. We decided that we needed a separate operations team, long-term to support some of the business we acquired. This resulted in creating a new management role and moving some responsibilities around. The upside is that we will have someone laser focused on this business with a fresh set of eyes. I guess the downside would be that it could end up being a distraction, with all the changes, so the ROI has to be really defined.
I don’t think major reorganization is a necessity for all M&As, it would depend greatly on the difference in structure of the target vs the acquirer. In some cases, the two companies are similar in structure, operations, and organization in which case it would make more sense to integrate the two structures together. However, when the target brings a completely new or different focus area or sector to the target, some re organization could be required to accommodate and integrate this change.
Thank you Jess and Srrah for your feedbacks. I do agree with the idea of having someone or a specific team focused on the transition post acquisition in order to get a better understanding of the different companies cultures and follow up of the process. On the reorganization side I also share your general view, for similar operations in most cases I do not see the interest of big shifts (often more a top level reorganization of ‘players’) but this is quite complicated in some cases when considering supporting functions, power fights, and story telling to investors. If the target brings something completely different I would consider something much more specific.
What do you think is the line between needing to restructure and not? If the target company has a vastly different org structure, they could just be plugged into the acquiring company’s org structure and they would adapt. But in what types of situations would that cause more problems then just establishing a new org structure that potentially blends the original two?
Hi Lauren, This is quite complicated and I would see really the restructuring effort on a case by case basis, and even if very similar entities, sometimes I do assume that a clear restructuring especially at the top and to align support functions is necessary if you do not want to have “phantom” or residual, if not conflicting, practices that emerge and prevail (For example on business development or legal matters you want to be sure everybody is aligned, the IT systems and data security). In my view this does not mean the acquiring company should impose its standards / methods, the acquirer should try to see out of the two entities what are the best practices and elements to move forward as a new group. The Northrop Grumman Information Technology case in the PMI section is a good example. They used the repetitive acquisitions to build up expertise (based on all the experiences) and the integration timeline as an opportunity to test people and methods.
We make a conscious effort to avoid significant restructuring post integration. The acquired target will already have some sensitivity and anxiety coming into the new organization. With the hot labor market and retention challenges, in a professional services firm, we can’t afford the risk to the team. Instead, we would communicate with all key stakeholders at the senior leadership levels to share our thoughts on org structure and ask for their input. Where possible, we would instead position the group at the beginning of the integration to align with future changes. Of course, change is inevitable and the group will be impacted at some point.
We had a large reorganization after our latest acquisition. This was largely due to the number of employees we acquired form the acquisition (about 1/5) of our workforce joined from this company. We are a previously small company growing into a large enterprise and it was time for a reorg regardless and the acquisition just forced our hand a little sooner.
The answer is that it depends (typical lawyer response, I realize!) If there’s one thing I’ve taken from the course materials in the EM&A module it’s that M&A are most successful when there’s good cultural, operational and technological alignment between the acquirer and acquired. If reorganization is necessary to achieve that alignment, then a re-org is the way to go. I can also attest to the negative impact of not making these sorts of changes post-acquisition. You can try to trudge along but eventually the inefficiencies will catch up with you.
From my experience, unless the acquisition has new lines of business, integrating the employees into the existing organization works well a lot of the time.
The rationale for an M&A, organizational size, vertical or horizontal acquisition, reorganization purpose, acquisition type (hostile vs. friendly), and numerous other factors, including the acquirer’s experience in executing reorganizations, should be carefully considered. While large-scale reorganizations can offer benefits, they are inherently risky and often warrant scrutiny.
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