The Acquisition Experience
While there are certain guidelines to conducting successful acquisition integration, there is no standard template. Each deal brings unique challenges. Folio: spoke with publishing executives on how they dealt with issues that didn't come up in due diligence.
In late December 2005 and September 2006, Prism Business Media (soon to be renamed Penton) acquired two aviation industry publishers, Boston Aviation Services and SpeedNews Inc. As a directory publisher, Boston Aviation Services had been on Prism's wish list for years, primarily for The Air Charter Guide, while SpeedNews brought Prism into the commercial aviation space.
Both companies fit Prism's marketplace well, but "strategically and operationally there was a little bit of a learning curve," says Shawn Etheridge, senior vice president, Information Data Products, for Prism.
With The Air Charter Guide, collections on past due invoices and previous advertiser commitments had been a component of the sales process, says Etheridge. "It becomes pretty daunting when a large company comes in and says, ï¾‘We'll just centralize collections,'" he adds. "A large company tries to standardize the approach to the marketplace. If someone spends a lot of money they gain favor. In small companies, a lot of deals are not scale-based but instead on many unique one-on-one arrangements."
With SpeedNews, many of the issues Prism had to contend with were accounting-related. "When a small, cash-oriented organization comes into an automated payables environment with large scale agreements with vendors, there are hurdles to get through in terms of operation integration;you don't just reach for a checkbook when the phone bill is due," says Etheridge.
Conversion from cash accounting to an accrued accounting, deferred revenue stream has been more of a struggle for the two companies than Prism expected. "In that world, billing equated to revenue; in our world billing is simply sales," says Etheridge. "The surprise challenge is the degree of effort it takes to get a common lexicon when we discuss sales."
While Prism could afford to ease The Air Charter Guide through the integration process, SpeedNews didn't have that luxury. " The Air Charter Guide was on a six month cycle;other than bank accounts and line accounting we weren't going to do anything with them until they made it through a full issue," says Etheridge. "SpeedNews is a weekly, even daily product, and our ability to go in and pick a finite point of time for heavy integration was offset by the fact that two days out of the week we're in full-set production."
There is no easy formula, says Etheridge. "I'd love to tell you there's a 12-step program to handling people but there isn't. Prism was an acquisition a year ago, and part of what we talk about is ï¾‘we're all acquired, we're figuring this out as we go.'"
"On the Grow Again"
When Highline Media bought National Underwriter in 2005, it took over a company with strong brands that had suffered from long-term neglect. "We saw a series of low hanging fruit that we could implement right away," says chief financial officer Tom Flynn. "It had the size we wanted so we could bolt on acquisitions and build up not only an insurance footprint but a footprint in the financial services world."
Contrary to many of today's acquisitions, which are accompanied by mass layoffs, Highline (now owned by Summit Business Media) faced the challenge of ramping up growth. "Our theme for National Underwriter was ï¾‘On the Grow Again,'" says Flynn. "The first step was investing in products and people and identifying people in the organization who wanted to step up. We needed to change the culture; we didn't want people to be happy with the size the company was."
Highline focused on sales and marketing and financial reporting. "National Underwriter was not invested in growing through new customer acquisition," says Flynn. "We also needed to look at financial reporting. That's a clear message of your objectives to the organization;do people know how they will be judged?"
Highline overhauled the entire human-resources function, including bringing in a new HR director. The company implemented an annual revenue process with comprehensive goals and objectives and put in a compensation structure that awarded people who achieved more for their goals. A Customer Champion program publicly recognizes employees who serve customers beyond the call;whether that's external customers or their own colleagues.
Highline also opened up the books for employees. "We hold quarterly meetings to lay out budget and discuss non-financial goals," says Flynn. "We're very clear with goals from a personal and corporate level." Since the acquisition, National Underwriter has grown 7 percent organically and 26 percent through additional acquisitions.
Flynn advises publishers to be flexible. "You have to go in expecting you're going to goof something up," he says. "Due diligence won't uncover everything."
Weeding Out Overlap
In September 2006, ALM announced the formation of a new conference and trade show division that combined a series of its event acquisitions, including Strategic Research Institute and Real Share Media (which produces events for the real estate business). "All of those companies were running independently;there was no centralized database, there was no central operating system, no standard operating procedure," says vice president of ALM Events Stuart Williams. "We needed to look for economies of scale by combining printers, vendors, hotels, any suppliers for the event industry. The combined group does over 300 events."
Identifying overlap was a key concern. "First we looked at people, then we looked at technology; does one unit have a killer application that should be integrated across the board?" says Williams. "We look at space, we look at the business process; does one unit have a much more efficient development process?"
Then ALM focused on standardizing its process for the new unit. "Do you have companies competing against each other? Is everyone on same compensation plan? The same benefit plan?" asks Williams. "The last thing you want is two people sitting next to each other doing the same job and getting paid completely differently. We knew we had to integrate certain databases, we knew we needed to do marketing analytics better, we knew we could enhance the sales process in certain business units. The biggest issue with personnel was standardizing the compensation component. In doing that, we standardized job descriptions."
Williams says companies need to be quick and decisive. "Integration is not easy," he adds. "It can take your focus off the core business if you don't do it properly. The last thing you want is staff sitting there for extended periods of time worrying about whether they'll have a job tomorrow, or what the compensation plan will be. The essence of an acquisition is disruption, but try to keep disruption to a minimum and do it in a timely fashion so you can get it behind you."
Acquisition by the Numbers
A step-by-step primer.
- Use a personal touch. The most important element is clear, consistent communication with your staff and the staff of the company being acquired. "Private equity pay much less attention to the people side, which becomes an accounting function rather than human resources," says one M&A specialist. "If you're not upfront, the employees will figure it out anyway and you're going to lose credibility."
- Re-verify acquisition assumptions. Due diligence is designed to give the buyer a detailed, behind-the-scenes sense of the property being considered. But second-hand assurances don't always leave the buyer prepared for the realities. "Once the deal is done, you need to make the rounds again," says Cam Bishop, CEO of Ascend Media. "You have to dive deep into product lines;identify areas for investment."
- Keep the business focus. Try not to lose momentum in the acquired company. "That's a lesson we've learned a couple times over," says Terry Snow, CEO of World Publications. At presstime, Bonnier, a major stakeholder in World, had just bought the Time4Media and Parenting Groups, and intended to merge them with World. "People talk about savings and consolidation but they lose sight of the top line. We need to keep them selling and not get distracted."
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