Retaining target's existing management to ensure forecasted growth

This topic contains 6 replies, has 7 voices, and was last updated by  joanwhitewagoner 3 months, 2 weeks ago.

Viewing 7 posts - 1 through 7 (of 7 total)
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  • #94679

    Bianca Stafford
    Participant

    Institutional knowledge and retention of existing management of a target to ensure forecasted growth, ie. buying people

    #96534

    Dale Deg
    Participant

    Bianca,

    There are a lot of academic studies available in the literature addressing this topic. In summary and in my own words, it is a two-edged-sword. This is due to a few primary reasons. First is how the two company cultures differ. Which includes how decisions are made. For example, if some managers at the target could make decisions and others at the acquire had to get approval, conflict and stressors can quickly affect the managers opinion on what is acceptable to them and how things are done the wrong way.

    Another concern is if the M&A was unwanted/hostile, some managers could purposefully want to negatively impact the acquire’s performance. This might seem counter intuitive, because this could mean not performing well and being let go. However, if there are negative emotions connected to the M&A, the manager might gain personal gratification from undermining the growth. They might even consider “jumping ship” to a competitor to cause further pain to the acquire. This doesn’t sound good but it does happen.

    Regards,
    Dale

    #96564

    Ang Pek How
    Participant

    In my opinion, retaining the target existing key management is definitely a good start if the target company is well managed by the management (there are cases where acquisition was performed on poorly managed companies for a penny price). The target’s management has shown its capability and possess the relevant experience in managing the target’s business. In the event that the target’s key management is unable to work together with the acquirer’s management under a merged entity due to cultural differences or any other reasons, it would be advisable to re-assess the situation and perform a firm-wide assessment on all management level staff to resolve the problem in order to move forward.

    #97119

    Fathurrahman Latama
    Participant

    It depends on the situations perhaps. If the acquirer is in the same industry with the target then it depends on decision made by the management from the target. If the target management has been proven successful with how they conduct their business then it would not be a problem with retaining the management. However, if the management has been proven would slow or has less contribution to the business during the due diligence then retaining is no longer an option. If the acquirer perhaps not in the same industry with the target then it would be wise to retain the management rather than to start again from the learning stage. Perhaps it all depends on the due diligence results.

    #108855

    Korath Wright
    Participant

    It makes sense that the people who have been the most responsible for producing value in the past would be best equipped to produce that same value in the near future. This lends to the idea of keeping existing management as a means to help ensure forecasted growth.

    Notwithstanding, with well aligned incentives for existing management may be able to increase the company’s performance. They are after-all the team in the position to be the most informed about the company’s performance and capabilities.

    However, current managers may not be the best people available for the job. Taking into consideration the change management implications and availability of HR candidates, there can sometimes be a case made for increasing a company’s value through a change in management. Installing new management to generate more value from an underperforming company is a well visited acquisition strategy, such as with activist investing.

    Aspects to consider when deciding how to plan around management could include:

    ❏ Impacts on service/customers, staff and business lines.
    ❏ Availability of candidates and their expectations.
    ❏ Historical performance.
    ❏ Cultural fit.
    ❏ Timelines.
    ❏ Industry knowledge/relationships and IP loss.
    ❏ Morale deterioration and opportunities for internal advancement.
    ❏ And many others depending on the situation.

    It can be difficult to evaluate what the impact on the company will be from managers and other key people staying or leaving. Especially in larger and bureaucratic companies where who is being productive can be counterintuitive. This, and in many other situations is where examination of which factors are important and how they apply to the situation specifics can provide insight.

    #109508

    Total agree to Korath wright’s viewpoints… and each M&A is unique and therefore there is no one size fit all approach… Clearly institutional knowledge and the existing human capital gives an edge but it should align to the purpose of creating value.

    #109526

    joanwhitewagoner
    Participant

    Spot on Korath. It is clearly not a one size fits all. It is critical to retain that insider knowledge but also be able to bring fresh perspective as well.

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