Hindsight is clearly a beautiful thing. Many a company in today’s consolidated, global OP fraternity would freely admit that what was once hailed as the deal of the year, if not the decade, turned out to be an unmitigated disaster.
Some bit off just a little more than they could chew, some deals just seemed to good to miss. Daisytek and USOP are some well known casualties in this regard – in their effort to become bigger and better, they failed to digest and build on what they already had.
It’s often the lack of a concise and well prepared integration strategy that can be held responsible for prolonged difficulties and numerous bouts of ‘restructuring’. Naturally, there isn’t a one-size-fits-all strategy, but there are certain things that companies can do to ensure a relatively smooth process.
One of the essential ‘must-dos’ in any integration process is to put it at the very top of the agenda. Post merger integration has to become a key priority, driven from the top down and permeating the entire organisation.
Ralf Oster is VP of sales within Sanford’s executive team for western Europe. He says: "You have to name somebody who is 100 per cent dedicated to the integration process and is responsible for it. Also, all your top people should be highly involved in the integration process. It’s important to be very disciplined and have weekly status report updates, on a country, European or world level, depending on your particular situation."
Oster is leading the European integration process of Dymo, bought by parent company Newell Rubbermaid from Esselte last year, from a sales and customer point of view. His responsibilities – and those of some of his colleagues at VP level – are not solely restricted to the integration process, but there is a European integrations director who is completely dedicated to the task and who works closely with the executive team at Sanford Europe and the various country managers.
A disciplined approach also ensures that the overall timescale of a merger and the ensuing integration process is a speedy one. Bjorn Maarud of Norway’s contract stationer/retail operator Tybring-Gjedde faces the daunting task of integrating Rich Andvord into the Tybring-Gjedde fold. This represents a particular challenge, since the acquired party is not only a former competitor, it also operates in a channel – wholesaling – that Tybring-Gjedde is unfamiliar with.
Maarud admits: "The speed with which we implement the integration is crucial. We have defined integration-specific goals for the different parts of the organisation which reflect our ambitions as well as a sense of urgency. Our prime objective is to be able to handle the integration process with minimum negative impact on our day-to-day business."
He adds: "Our target is to be ahead of the ‘expectancy curve’ when it comes to realising synergy effects and we have clear and concise procedures to follow. These are necessary in order to demonstrate high levels of predictability and the ability to quickly control unwanted deviations."
There’s a generally held view that any integration process should not exceed 180 days. This follows a typical transition, or diligence, phase of about 90 days. Oster elaborates: "Six months is a long time following change of control. Certainly within that time, you should have at least 80 per cent of the business integrated, ie the most important aspects."
What constitutes the most important aspects is of course open for discussion. According to a recent survey by Booz Allen Hamilton, IT issues are the third most cited cause of merger failure, after operating philosophy and management practices.
Anton Stahrlinger heads PBS-Holding in Austria and has made it his mission to create a pan-European OP wholesaler. His current focus is on PBS-Holding Germany, created a year ago. It now comprises four regional wholesalers which were also all bought in 2005. And integration is well under way.
Stahrlinger says: "IT is clearly a focus point for us. Organisations are linked to information and there is no integration without integrating the information and communication processes. Our business model relies on fully integrated processes to our customers and along the whole supply chain, so there won’t be any integration without completely bringing in line the IT and communication systems and infrastructure across all companies."
Efficient and speedy integration is also essential in order to keep a close eye on what, at the end of the day, is the most important aspect of any merger – the customer. After all, the point of any deal is to increase revenue, be that through acquiring new customers or strengthening relationships with existing ones.
President of Office Depot International Charlie Brown knows all about integration and about customer focus.
Since Brown was appointed to his current position a year ago, he’s had his work cut dealing with the ongoing challenges at its Guilbert contract business, which it acquired in 2003.
He says: "Retaining acquired revenue is a fundamental aspect of any deal. However, when we explore potential opportunities, the rationale must be deeper than simply ‘buying’ revenue. Purchasing leverage, enhanced distribution, the ability to strengthen existing market positions or enter adjacent markets are other important considerations."
Depot and Guilbert were regarded as "highly complementary businesses, creating incremental shareholder value". Nearly three years down the line, the reality is somewhat different and while Brown says that the integration process for Guilbert is essentially complete from a business and cultural perspective, he admits that "we continue to explore ways to improve our customer service and reduce our costs".
Indeed, ongoing restructuring efforts and the loss of nearly 100 jobs just recently suggest that the Depot/Guilbert saga is far from over.
What it boils down to, here as in many other cases, is a cultural clash between the merging parties. No matter how cash-rich the acquiring companies involved or how well known the brands that they acquire, if a merger doesn’t add up to a good cultural fit, any integration process will be an uphill struggle.
Esselte’s acquisition of the hugely successful Leitz company/brand in Germany in 1998 turned out to be a tricky integration, mainly as a result of cultural clashes.
Lyreco’s CEO Eric Bigeard knows what he’s talking about. The contract stationer’s purchase of Ahrend’s OP division and its foray into the Finnish market are just the latest in a long line of acquisitions and integrations.
Bigeard comments: "Yes, you have to think about customers during the whole process. It’s too easy to get wrapped up in internal issues. That said, to allow a successful integration, company cultures must fit. And too often this is not the case! You can have some great brands coming together, but you can break a company if the fit isn’t right. Staff will leave and especially at a time like this, you rely on your top people. Explaining to staff what you’re trying to do at all times and why is fundamental."
Oster agrees. He was heavily involved in a number of mergers, perhaps most notably in the Avery Dennison/Zweckform deal in 1998. And he firmly believes that, then as now, it’s all about people. He says: "A key factor in any integration process is people. Not taking into consideration people and their different business cultures is the reason why most acquisitions fail. You will never have a positive integration phase if you have a lot of roadblockers, so this should be a big focus."
Of course, redundancies are part and parcel of any merger, so there will always be a certain amount of anxiety in this regard, but as long as there’s open communication from day one, any apprehension can at least be kept to a minimum. Non-hire policies as well as extensive (re)-training programmes are also common following acquisitions, partly to give existing staff the opportunity to move into other positions.
Historically, cross-country acquisitions and, even more so, mergers on an international scale, have attracted the most attention – and criticism. Buhrmann/Corporate Express, Office Depot/Guilbert, Esselte/Leitz are prime examples – none of them have gone down in OP history as being outstanding integration successes. The jury is still out on two of the major international deals that happened last year – the Acco/GBC and Newell/Dymo mergers.
That all said, though cultural differences are perhaps more pronounced within an international community, even within a single country, there can be considerable regional differences and, as PBS-Holding’s Stahrlinger knows from his own experience of integrating several companies with standalone facilities in Germany, any firm would do well to pay close attention to "the way things are done in certain regions".
But it’s in the US where the OP consolidation era began over a decade ago. And the industry’s golden child, Staples, has accumulated its fair share of experience in buying, selling and integrating.
Joe Doody heads up the company’s contract and commercial division. He recalls the challenges he faced when trying to integrate the many businesses that Staples had bought in the 1990s. Between 1994 and 1998 alone, it bought seven major contract stationers from various US states. "With each of these businesses that we bought," explains Doody, "we bought a bunch of infrastructure and we also had our own infrastructure. A lot of what I’ve done over the years is integrating these back-end operations together, so that today we have primarily multi-channel facilities, in some case for Staples business delivery and Staples contract, in other cases for Staples business delivery, Staples contract and Quill, which is what we call our tri-channel facilities."
One of the most recent Staples’ deals, the purchase of Prime Office Products last year, presents its very own challenges. Says Doody: "Prime is a roll-up itself, it has made upward of 30 different acquisitions over the years and is scattered throughout the US." So there’s plenty of work to do, from a cultural, logistical as well as IT point of view.
It’s safe to say that those that keep their eye on the ball before, during and after a merger announcement and communicate effectively will be the ones that will live to tell a successul tale. The clock’s ticking…