Friday, December 3, 2010

M&A integration: not one size fits all

Near the end of Cisco’s acquisition binge of the 1990’s, CEO John Chambers once remarked: “In a merger you can't blend resources and cultures--only one can survive." At that time Chambers’ approach to M&A integration involved pure absorption. The Star Trek/Borg axiom “resistance is futile, you will be absorbed” played center stage. Cisco’s culture would dominate.

By the time Cisco bought Scientific Atlanta (SA) in 2006, Chambers attitude toward M&A was changing. This acquisition would extend Cisco’s domain, not merely strengthen it. And Cisco saw there were certain management processes (including supply chain management) where it could learn a lot from SA. Cisco’s integration approach for this deal would move from absorption to alchemic.

Kent Kresa, former CEO of Northrup Grumman and architect behind many noteworthy Northrup acquisitions, likes to compare M&A integration to New York City in the late 1800’s. While immigrants from countries such as Ireland and Italy would be absorbed into the City, an alchemic process was also working whereby the best of each culture would be amalgamated into a new New York. So it is with M&A combinations where the best of each company should be put forward.

There’s a time for M&A absorption to prevail, especially where the need for autonomy in the target is low while the need for strategic interdependence high. But there’s a time for alchemy to govern, especially where both acquirer and target have distinctive advantages that should be blended.

Furthermore, there’s a time for preservation to triumph, especially where the culture of the target should be allowed to remain intact lest a “buy and crush” dynamic destroy the organization elements that made the target attractive. For example, Warren Buffett’s Berkshire Hathaway is famous for preserving (and then nurturing) its acquisitions.

Finally, hybrid integration approaches at times will be the most effective. Consider Cisco buying a networking component company to complete a solution stack it can offer Cisco customers. While tight product integration demands absorption of the target, there might be a “center of excellence” within the target (say software development) that Cisco should preserve and even enlarge. In this case, both absorption and preservation are employed.

Successful M&A involves the art of integration. But there is not one master template for this art form. Value capture that derives from M&A integration is not a one-size-fits-all proposition.