The Artic1es of Acquisition.

One of the critical turning points in a CEO's career comes when he decides to acquire a company of significant size.

The CEO throws himself into the task. He meets with the investment bankers, the lawyers, the accountants, and the press. He reads voluminously about the new company and carefully studies the pro forma balance sheets, profit and loss statements and, especially, the spreadsheet projections. He has several talks with the executives of the company being acquired. Finally, after weeks--or perhaps months--of expensive negotiations, the deal is finalized at a breathtaking price. Lots of pictures are taken and many articles written.

An interesting reaction seems to occur at that point to many CEOs--they lose their attention span. The acquiring CEO goes back to his basic businesses that he's put on hold during the negotiations for the new business. He has much to do in catching up on things and taking charge again.

Meanwhile, back at the acquired company, the ex-CEO and some of his senior executives have exercised the change of control terms of their contracts and resigned. The "cultures" of the two companies are beginning to clash as the control systems, the personnel policies, and the budgeting processes begin blending together. A few surprises are found that the due diligence overlooked. A major customer defects. A wildcat strike erupts at a plant. Before long, the new acquisition is on the verge of busting up.

Is this the way things go with acquisitions? Not always, to be sure. But often enough and near enough to reality so that any CEO making a significant acquisition should have his guard up. A recent survey by KMPG reported that 83 percent of the acquisitions made last year did not live up to forecasted plans. Ask Jill Barad of Mattel, who lost her job over one. Ask Henry Silverman of Cendant, who purportedly went to a psychiatrist. Even Jack Welch of General Electric lost his temper over the problems of the Kidder Peabody acquisition.

Is there anything a CEO can do to prevent a calamity in making an acquisition? The best preventive medicine I know is to act like the professionals act when they take over a company. Take GE, which made 108 acquisitions last year. GE has an "integration model" that bluntly faces up to the problems that will almost always arise and has a checklist for forcing through the changes that need to be made. Even before the acquisition is completed, GE has a due diligence team that drafts a special timetable for each phase of the integration plan. And there is an "integration manager" who moves into the acquired company, not as an operating executive, but as a full-time coordinator to help with the integration problems. With a lot of practice, this system works pretty well for GE and it might for you.

After years of being involved in dozens of acquisitions--on both the buy and the sell side and as an executive and a director--I have compiled a little list of truisms that seem to happen at nearly all acquisitions:

...Several senior executives will leave soon after the deal is closed. You must strive to hold the ones you want and to get rid of the ones you don't want.

...Most of the salaried group did not want to be acquired and are suspicious of your company. You need to sell them on the good things about your company.

...The greatest fear in the new company is fear of change, and change is inevitable in an acquisition. You need to get the changes over with fast.

...The "culture" of the acquired company is going to be different from that of the acquirer. You must decide whether you were buying the technology of the company or the people--or both--and how you capitalize upon your purchase.

Most of these characteristics require sensitive treatment by the acquiring company, and particularly by its CEO. Unless you have the powerful force of a GE behind you to drive quickly a conversion to your way of business life, then you had better be prepared to spend a lot of time with your new acquisition. The closing of the deal is not the end. It is simply the end of the beginning.

Formerly the CEO of F.&M. Schaefer (1972-1977), Robert W. Lear is chairman of CE's advisory board. He taught at Columbia Business School, where he was executive-in-residence until June, 1999. He has been a director of many companies and is on the advisory boards of five small firms. He is a partner of Lear, Yavitz & Associates corporate governance consultants.