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The Post-Acquisition Due Diligence


(A Description)

The Traditional Due Diligence
Everyone in the business of acquisition and merger understands Due Diligence: it is, in brief, the validation of the facts on which the purchase price of an acquisition is determined. Those who do it are professional, skilled and careful; their livelihoods depend on it.

Though no one would attempt to acquire a company without a due diligence, it has been well known (and for many years) that fully two thirds of all acquisitions/mergers are disappointing - or worse.

In these disappointments, there is a temptation to blame the due diligence - either the process used or the professionalism of the people doing it. But almost never is that the problem. The areas that are looked at in a due diligence are set by custom and tradition and these "due diligence" factors account for no more than 20% of the long term performance of a company . Furthermore, looking deeper or looking elsewhere in the company is discouraged.

Almost always, the problem of disappointing acquisition/merger ROIs lies outside the factors that even the most careful Due Diligence can address. It lies within the Operating Dynamic© of the acquired company.

The Operating Dynamic©
The Operating Dynamic of a company is that complex of human and organizational factors that drives corporate behaviors and generates performance . It does, in fact, account for 80% of long term corporate results. It is also that part of the company that was almost certainly traumatized and made less functional by the very processes of sale, due diligence and purchase.

Until recently, the Operating Dynamic was considered to be impenetrable, obscure, and non-quantifiable. It was also thought that there was nothing much anyone could do to change it; an investor could only appoint managers and hope and wait.

However that is no longer true. There is now a dependable, predictable, understandable, easy-to-use technology for identifying the Operating Dynamic, quantifying it, and predicting the impact its various components will have on the trajectory of the company.

The same technology can be used for changing it, where that is needed. It has been battle tested and proven on the bottom lines of companies for the last twenty years.

The process might justifiably be called a Due Diligence - Phase II. But, because tradition and custom seldom permit its use before an acquisition, and because it can be used at the discretion of the investor after the purchase, we call it The Post-Acquisition Due Diligence © - PADD. (For reasons that will become clear later, it can also be called The Corporate Renewal Process © .)

Objectives of the Post-Acquisition Due Diligence
The purpose of The Post Acquisition Due Diligence© is sevenfold:

  1. To open - in depth and in detail - the Operating Dynamic of the acquired company to the scrutiny and understanding of the investor. And do so through the eyes and from the perspective of its managers. This includes:
    • Identification of the human and organizational factors that are in fact driving the performance of the company and its units.
    • Appraisal of the intrinsic corporate trajectories.
    • Identification of the areas that are constraining or confounding performance.
    • Identification of the factors of greatest impact.
    • Identification of the changes that will provide greatest improvement.
  2. To open the Operating Dynamic to the scrutiny and understanding of the management of the acquired company. (Interestingly, the senior managers are often as much in the dark about the inner drives of their company as the investor. And, certainly, after the trauma of sale and purchase, there are always new and serious problems to address.)
  3. To create and declare an emotional New Beginning for the acquired company. Hence the alternate name of the surveys as The New Beginning Surveys © and the process as the Corporate Renewal Process .
  4. To create healthy and open working relationship between the investor and the acquired company.
  5. To establish and articulate clear expectations for both the investor and the acquired company, in terms of operating dynamic as well as financial and other measures of performance.
  6. To develop specific action plans to begin the process of change and integration. This leads to the development of a detailed, remedial and entrepreneurial action plan, created by the managers who are responsible for conditions and who must lead the changes that were committed to publicly by them.
  7. To establish follow up mechanisms for all levels of management, from investor to CEO to management team, so that plans are accomplished and goals fulfilled.

The Corporate Renewal Process (or PADD) consists of:

  • A survey
  • A debrief/feedback session

The surveys are specifically designed to be responded to by management - from the CEO to the lowest level supervisors - those who are most responsible for the Operating Dynamic of the company as it currently is; those who will have to spear-head the changes that may be needed.

The surveys are anonymous, within management team. They are comprehensive, yet take only twenty to forty minutes (depending on size) to respond to. They address at least a hundred factors of the Operating Dynamic of the company. (See Below)

They are web based so that they can be accessed from anywhere. The "questions" are phrased as statements so that responses present themselves to the mind almost automatically without having to be agonized over. And they can handle textual commentary.

These surveys are designed to show results for the overall company, and also unit by unit within the company. They can accommodate companies ranging in size from small to Fortune 100 conglomerates.

The debrief/exploration session is where the major benefits of the Post Acquisition Due-Diligence are achieved - not so much from reading the results of the survey, but in the actual exploration and explanation of the results by the senior management team. It is only by this in-depth discussion and analysis by the people most responsible for the current situation that true understanding and acceptance can happen. Likewise it is only in this fashion that true management commitment to change can be created in so short a time.

The debrief session takes place in the presence of, and with the participation of, the investor. However, the leader of the process is the CEO - sometimes the CEO + the investor. The session is facilitated by one, sometimes two, of our senior business diagnosticians.

Detailed descriptions of the process used for this can be found in the articles at the Publications page of our web.

Setting up the survey usually takes less than one day. The investor and the CEO of the acquired company determine the amount of time the survey will remain available on the web. Depending on size, it usually takes twenty to forty minutes to respond to and it can be done a few minutes or a few questions at a time as opportunity permits.

Once complete, it takes as little as two days to analyze and evaluate. It should be noted that this is done, not by a computer program, but personally by the senior diagnosticians of our company who will lead/catalyze the feedback sessions.

Depending on size and complexity of survey, and the level of pathology found, the debrief/feedback session takes from as little as a few hours to two days.

Fees range from six-thousand to thirty thousand dollars plus out of pocket expenses, depending on size and complexity of organization, the survey chosen, the number of people responding and the length of the debrief/feedback session.

For information on how the PADD might work for your acquisition, contact us at info@ManagementConsultants.com or 847-599-9960.

A recently published article describing the process from start to finish, is available at http://www.managementconsultants.com/content.cfm?contentalias=postacquisitionduedil.

list of the factors comprising the Operating Dynamic© can be obtained without obligation by requesting same at info@ManagementConsultants.com.