Best practice: Mergers and acquisitions

Today’s monthly series reveals how managers tackle business problems and
enhance performance. In this issue Tony Dee, business excellence manager at
BASF, explains how creating a comprehensive process for mergers and
acquisitions can unlock company culture and help avoid unwelcome surprises

BASF in the UK is part of an international chemical group, with offices and
plants worldwide. The company has always been involved in mergers and
acquisitions and at any one time, changes to the BASF portfolio will be taking
place. With M&A such an important business developer at BASF, it is a
process the company takes very seriously.

Traditionally, the M&A process at BASF has been largely intuitive,
relying on the skills of a small team of specialists. This has worked in the
past, but there was always the possibility that someone from the team might not
be available to share their knowledge and thereby disrupt procedures. As a
result, BASF was keen to transform the intuitive approach into something more
structured and robust that could be shared by others and help the company learn
from its experience.

The core team used for M&A essentially comprises legal, finance, tax,
personnel and pensions. Although M&A frequently take place at BASF, none of
the team members is employed solely for this purpose. This makes it difficult
to establish continuity, and occasionally, BASF was finding it couldn’t capture
the learning from one activity to the next. This was frustrating for a company
that prides itself on its best practice approach to business.

How we implemented the change

What was needed was a defined and structured process to capture the expertise
of team members and create a system others could benefit from. The ideal
situation would be that if one of the team left the company, or changed their
job, the rest of the team would know immediately where he was up to and what
still needed to be done.

It was also important that the project sponsor had a mechanism where he was
able to focus on the key issues affecting the project.

The starting point was the creation of checklists that would form the input
to a key issues document during investigation.

This straightforward approach takes into account every component of the
process within each of the disciplines – legal, finance, tax, personnel, IT,
commercial and pensions.

The M&A process is complex and detailed – and not just on the legal and
financial side. Within the HR section for example, the fields include
organisation, management and employees, terms and conditions, status of
workers, salaries, benefits, trade unions, employee records, personnel forms,
recruitment material and labour relations. Each one of these factors may have a
crucial bearing on the success of the activity.

One of the key factors that has emerged from creating a procedure for
M&A is the growing realisation that resolving the "hard areas" of
concern, such as finance, legal or tax, does not guarantee success. The whole
picture must be observed, and people are a top priority.

It is for this reason BASF creates two other documents as well as looking at
key issues. The first is "synergies", which looks at areas where
there are resources the new organisation of BASF could benefit from. This part
of the process deals with the positive aspects of how the two companies can
join seamlessly together.

The second is the culture assessment. Each team member contributes to this document
by logging their feelings and instincts from their dealings with the new
company. Some of these are very anecdotal by their nature and difficult to
quantify, but they are viewed as essential in creating as full a picture as

The team might pick up that an organisation is autocratic, or empowered, or
has a militaristic style, or seems to be run like a family firm. These aspects
of company life – although not the hard facts of the financial or legal side –
are vital to assess if the merger is to be a success.

Positive outcomes for the business

Once complete, the three documents work together to give a rounded view of
company life, so BASF can make an educated assessment about the company it is
focusing on. The collected facts help BASF to minimise problems, benefit from
the synergies and understand the culture.

If the team has raised a cultural issue, practical methods are to try and
harmonise the new organisation post integration. This might be in the form of
workshops or activities to identify the cultural clashes and try and bring them
together, or consciously allow them to co-exist. BASF does not have a rule that
says its culture is the only one that is acceptable. It is happy to have
multiple cultures working in harmony. For BASF, the M&A process is about
going forward together.

Once the contract is signed, the three documents are handed over to the
integration team and a review is carried out to assess the success of the
process and capture the learning for next time. The integration team is
presented with five or six month’s worth of research to help with their side of
the process, putting them firmly ahead of the game.

At BASF, the definition of M&A success is having no problems. If the
merger enables growth, if personnel stay and are happy, if the company can
still produce the goods, then that is a success. Of course, there are always
surprises, but the fewer there are, the better the company must be getting at

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How to successfully manage mergers & acquisitions

– Take a
holistic view of the merger activity

– Project manage through the activity to retain the process

– Review the process and capture the learning

– Use the process and documentation as a communication tool  

– Create capacity and flexibility in the process to deal with
the unexpected

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