A Debtors Reorganization Plan Is Confirmed Now the Real Work Begins
Imagine the following scenario: A debtor develops a reorganization plan that contemplates the merger of its operations with another operating entity. It successfully attracts new capital from investors and executes the appropriate investment agreements. It negotiates a reorganization plan that's acceptable to all creditor constituencies. The debtor complies with all required provisions of the Bankruptcy Code and presents all requisite documentation to the bankruptcy court, and the judge enters a confirmation order. After months of hard work that included nights and weekends, extensive travel and difficult negotiations with creditors and other constituents, it's finally time to exhale, relax and perhaps celebrate the many challenging tasks completed – the confirmation order, merger and successful reorganization. Isn't it?
Not so fast. There is still a significant amount of work to complete. It is actually time to take a quick breather and recognize that the restructuring can only be deemed a success when the integration of the two companies is completed and the goals, as described in the reorganization plan, are achieved.
A financial or restructuring advisor can play a vital role in the integration process, ranging from functioning as a project manager for the entire integration, assisting individual integration teams where the advisor has a specific expertise, or acting as interim management as the integration plan is completed. When advising clients that are contemplating mergers, the financial advisor should be aware of the following merger and merger integration success factors:
• Select Leadership Quickly. The selection and communication of the senior management team including the CEO, those who report directly to the CEO and other senior-level corporate officers will most likely be the first high-profile public decision made by the new organization. The selection of the senior management team will eliminate ambiguity, uncertainty and speculation throughout both organizations. The decisions, when made quickly and decisively, will demonstrate internally and externally that the new organization is actively moving forward with speed and conviction. Moreover, the expedient selection of the senior management team in the early stages of the merger will also allow ample time to analyze and ultimately choose the middle-management team that will be critical in effectuating the merger integration plan.
• Plan the Integration as Early as Possible. The integration of two organizations is a complex, labor-intensive undertaking that includes many related and interdependent decisions. It requires significant planning and coordination horizontally across all disciplines, as well as vertically through various levels of the organization. The work performed during the pre-merger due diligence process should become the foundation of the merger integration process and should be leveraged when a comprehensive merger integration plan is developed. The integration plan will take significant time to complete; therefore, beginning as early as possible is a critical element to success.
• Build a Strong Integration Structure. The merger integration effort should be organized in such a way that provides adequate oversight by senior management or a Steering Committee. A simple but effective structure for managing the overall integration process is illustrated in the chart below.
An effective steering committee provides overall strategic direction, resolves significant differences or disagreements, makes critical "go"/"no go" decisions and facilitates communication. While fulfilling these responsibilities, the steering committee should also provide the individual integration teams autonomy to develop and execute detailed work plans in their respective areas. The program office serves as an overall project manager for all integration tasks. The general responsibilities of the program office include coordinating the day-to-day work of the individual project teams, keeping the integration process moving forward, identifying and elevating key issues to the steering committee for resolution, functioning as an independent facilitator, managing the overall integration process and maintaining consistent processes and coordination among individual project teams.
In addition to the overall structure, a standardized framework should be developed so that each integration team approaches the merger in a consistent manner. Each integration team, working within the overall framework, must develop detailed work plans with realistic milestones, prepare assessments of policies and procedures and complete other analyses as necessary given the specifics of the particular merger. Given the inherent complexity of a merger, the standardized framework will allow for coordination within and between each of the integration teams.
• Consider Integration Management a Full-Time Job. It is important to recognize that overall integration of management is a full-time job. The program office, as described in the diagram above, is more adequately described as a project manager and should be versed in project-management skills. This role can be filled by an external financial professional or by an internal resource. Regardless of what resource is ultimately chosen to fill the program manager role, the position should be viewed as a full-time endeavor. In addition to the program manager role, the integration work being conducted by the individual integration teams will require a significant time commitment, and it is often necessary to reassign day-to-day responsibilities to other individuals within the organization. Therefore, the effect on the day-to-day operations of the organization should be considered when the integration team leaders and team members are selected. It would be ideal that the individuals who are assigned to the merger integration process are fully dedicated (or substantially dedicated) resources, and that their selection to the integration team will not have a detrimental effect on routine business operations.
• Exhibit Speed and Decisiveness of Action. In many mergers, the achievement of synergies (be it revenue-enhancement or cost savings) is based on the assumption that the merging companies will eventually operate as one operating entity and therefore increase revenues, eliminate unneeded duplicative overhead and leverage the "best practices" of each organization to achieve operational efficiencies. Typically, time is of the essence, and speed of execution is critical to achieving or surpassing the expectations of management, investors and other stakeholders. Delays in integration implementation only put the success of the merger at risk.
Speed and decisive action can be achieved through various means including, but not limited to, scheduling periodic (often weekly) meetings with the steering committee and integration team leaders. The purpose of the steering committee meetings should be to review proposals and/or analyses and to make strategic decisions necessary for the integration teams to continue executing their plan. The purpose of the integration team leader meetings should be to facilitate communications across all teams as well as to ensure that issues and obstacles are identified and action plans are developed to resolve them in a timely manner. It is not acceptable to meet by rote; the meeting facilitator should ensure that issues and problems are addressed and resolved. When they cannot be resolved, subsequent steps should be clearly identified and documented, specific tasks should be assigned to team members and deadlines established. These steps will ensure that that the overall integration process can move forward efficiently and effectively.
• Establish a Vision and Clear Goals. Another important aspect of merger integration planning and execution is the development and communication of an overall corporate vision. The vision should articulate what senior management envisions the new organization will be or what the organization is striving to achieve. The vision may also contemplate and articulate the product/service offering to its customers and the company's promise to them. In addition, it is important to identify specific and clear goals. The goals may target operational or financial improvements, but can also be related to other aspects of the organization such as employee retention, reducing business risks or improving customer retention. The goals should be measurable and as specific as possible, so that over time their achievement (or shortcomings) can be assessed, and they should also be aggressively monitored throughout the integration process and beyond. Throughout the merger integration process, a clearly articulated and understandable vision combined with specific goals will help provide direction to merger integration teams and other employees who are responsible for the execution of the merger strategy and the achievement of these goals.
• Establish Open, Frequent and Timely Communications. It is critical that open, intellectually honest and timely communications be conducted within the steering committee and the individual merger integration teams. Open communication can be accomplished by conducting weekly meetings with the steering committee to review overall progress, to discuss and decide upon high-level strategic decisions and to resolve conflicts. Conducting periodic meetings with the merger integration team leaders is important and can help facilitate the efficient dissemination of key strategic decisions made by the steering committee and allow for open communications about issues, problems or successes being experienced by individual teams. Because of a merger's complexity and the extensive relations and dependencies between business functions, conducting regularly scheduled periodic meetings is probably the most efficient way to communicate and facilitate decision-making (e.g., an information technology decision for a back-office system may affect various departments or operational functions).
Mergers or acquisitions create ambiguity and uncertainty related to employees, particularly concerning their jobs and their future prospects with the new company. Clear, concise and informative communication with employees is critical to mitigate speculation, rumors and disinformation that may circulate throughout the organization. Keeping employees abreast of key strategic decisions made, major milestones or goals achieved and significant upcoming events will also boost morale within the organization. This, in turn, will allow employees who interface with customers or other external constituents on a daily basis to more effectively and positively communicate facts related to the merger. These types of communications can be achieved through scheduling regular staff meetings, creating and publishing a newsletter focused on merger activities and posting information on internal electronic bulletin boards or via e-mail distribution.
Communications with external constituents including customers, vendors and investors are paramount, as well. Informing these stakeholders of the progress made toward successfully merging the two organizations is critical given that the company recently emerged from bankruptcy protection and is still in the process of re-establishing business relationships.
• Actively Address Cultural Issues. In situations where a reorganization plan contemplates a merger or acquisition, focusing on and addressing the cultural differences between the two corporations is often underappreciated. In the integration structure described above, a separate merger integration team responsible for developing and implementing a cultural integration plan is essential. Without being anticipated and actively managed, disparate corporate cultures can completely undermine the merger integration process by creating internal tensions and resentment within the organization that can negatively impact employee performance and the bottom line.
• Focus on Customers. Significant corporate resources will be expended to ensure that the merger of two companies is successful. Time and resources will be spent on developing detailed work plans, analyzing various strategic alternatives, meeting to discuss and resolve problems and issues, mitigating risks and completing myriad other tasks – all of which are necessary and essential to ensure that the merger is a success and goals are achieved. However, if product and service offerings and the customer experience are not an explicit focus throughout the merger integration process, defined goals or general expectations of the merger may never be fully achieved. The merger should not only provide increased value to the customer, but the transition to the combined entity should also be transparent to customers. The new organization must vigilantly guard against getting too "caught up in the merger" and losing sight of the customer.
• Rigorously Manage Risks. There is little doubt that no matter how much planning is conducted, unanticipated risks, challenges and difficulties will be encountered and addressed after the integration gets underway. All involved should aggressively identify risks associated with the merger or acquisition. The identification of risks should not be considered a one-time event or task and should be continually reviewed, revised and updated. The rigorous management of risks – addressing them head-on and developing solutions to mitigate them quickly and decisively – is of critical importance. The types of risks that should be identified and aggressively managed include financial risks, operational risks, execution risks, risks related to the delay of implementation and personnel-related risks.
Success for in-court restructuring cases can be defined in various ways, including emerging by a certain date, achieving a recovery to creditors in excess of a specific percentage, raising more than a specific amount of new capital or arranging favorable exit financing. However, in instances where a merger or acquisition is the key aspect of the turnaround plan, success should not be viewed this short-sightedly or in such a myopic manner. True success in these instances can only be fully assessed after the merger or acquisition is complete and the "actual vs. forecast" analysis can be prepared. Given the enormous task and complexities associated with successfully merging two organizations, the key success factors described above can be employed to help ensure that in the final analysis, a turnaround plan involving a merger or acquisition can be judged a success.