Mergers and Acquisitions For Dummies (92 page)

IT and software changes:
IT and software changes are another area that you don't need to deal with immediately. After you take care of other changes (such as payroll, HR, and purchasing), you can begin to update or change the IT and phone systems, if necessary.

Culling Products and Services

I can't write a one-size-fits-all guide for combining or culling products and services. Buyers go through countless considerations when deciding whether and what to combine, cut, or keep. Instead, this section gives you some of the criteria you may use when making these integration decisions. For brevity, I'm just going to use the word
product
when referring to both products and services.

One of the first steps is often to compare the acquired products to the parent company's products. Remember your rationale for making the acquisition: If you bought the company in order to pick up new products, you'll likely keep integration of products to a minimum. However, if you bought the company to increase your market share or to obtain new customers or geographies, you may want to take a long, hard look at the product mix of the parent company and the acquired company and determine if all the products fit your go-forward plan. (Flip to Chapter 2 for more info on determining motivations for acquisition.)

Here are a few criteria you may use to compare and contrast the mix of products created by your acquisition:

Financial performance:
Products that aren't profitable enough or even lose money may be worth cutting. Depending on your situation, you may be better suited utilizing the resources (employees, money, time, office space, and so on) to sell a product that generates a higher profit.

Quality:
You may choose to eliminate products (existing or acquired) deemed to be low quality. Now that you have the added revenue from the acquired company, you may be able to finally pull the trigger on getting rid of some of your product line's dogs.

Market overlap:
If the parent company's and acquired company's products compete against each other, you likely need to make some decisions about shutting down or integrating these products to avoid overlap. Some options here include slapping the acquired product's brand name on the parent company's product or vice versa if one product has good brand recognition (see the following bullet). Or maybe you keep the product with higher sales and/or profits.

Fame:
Using the strongest brand name (be it from the acquired company or the parent company) for all of the products in the combined company may be a good strategy. A household name can go a long way to increase market share.

Strategy:
Do all the acquired products fit with your strategy? If not, you may elect to shut down or sell off products that don't fit the go-forward strategy of the parent company.

Housecleaning:
This rationale may be rather simplistic, but after the deal is done you may simply have too many products, such that some of them have to go.

In addition to improving the product mix of the parent company and the acquired company, you may
rationalize
sourcing — that is, reduce the number of vendors supplying the acquired company and/or parent company. The idea behind rationalizing is that you expect better pricing, terms, and service by conducting more business with a vendor.

Combining Operations, Administration, and Finance

As with a company's products and services, the level of integration with operations between acquired company and parent company largely depends on how much autonomy you as a Buyer grant to the acquired company (see the earlier section “Determining the level of autonomy”). In some cases, the level of operational integration may be high because you want to realize savings and streamline operations by eliminating duplicate positions and processes, closing extra offices, and moving employees to one office.

In other cases, you may grant the acquired company a lot of autonomy, sometimes out of necessity: Your executives may not be experts in the acquired company's industry, so you have to rely on the expertise of the acquired company's management team.

One of the reasons companies buy other companies is to realize the benefits of cost savings when the two entities are combined. Here are some of the common areas you as a Buyer may look to change and update:

Analyzing the
t
echnology and software:
You may decide the parent company has more robust IT and software packages than the acquired company and that you want to go with the parent company's system. Avoiding competing and conflicting technology and software helps streamline operations and should help wrangle out some extra savings.

Changing
a
ccountants and improving accounting controls:
Parent companies are typically larger than the companies they acquire; as a result, your parent company probably works with a larger accounting firm than the acquired company does, and you'd probably institute stricter and tighter control over all sorts of accounting functions (paying bills, taking inventory, collecting past due accounts, and so on).