Reducing the risk of M&A

Acquisition Integration at Textron Systems Company

The past decade has seen a record number of mergers and acquisitions as companies seek competitive advantage across a growing global marketplace. Central to determining the suitability of a potential merger or acquisition is the Due Diligence process. One of the key purposes of due diligence is to determine potential business risks and liabilities inherent in the deal.

“While the numbers added up and AAI was by all accounts a perfect fit for our long term business strategy, I was concerned about how we were going to integrate such a large number of AAI employees into the Textron family and what that influx would do to our own culture.” - Frank Tempesta, CEO TSC

The majority of the due diligence process tends to focus on financial, operational processes and legal matters. In some cases leadership, the management team and key operational processes are assessed for robustness and fit with the acquiring company. Rarely are the two merging cultures assessed for how well they fit together.

Academic studies on the success of mergers and acquisitions often cite incompatible cultures as a key reason so many mergers fail. To date there has not been an effective and robust way of defining and comparing two companies for cultural fit – a “cultural due diligence” process.

When $1.4B Textron Systems Company acquired $600M AAI (a division of United Industrial Corporation) in late 2007, on paper it looked like a perfect fit, with AAI’s unmanned aircraft reconnaissance technology fitting perfectly into the Intelligent Battlefield Solutons of Textron. But TSC Chief Executive Frank Tempesta wanted to make certain there were no “hidden” liabilities, especially since this was a major acquisition and Textron had a relatively poor track record in acquisition integration. Tempesta turned to John Childress for assistance.

Drawing on over 20 years of studying corporate cultures, John developed a web-based Culture Snapshot™ using a 27 question scale which was sent to senior and middle managers at both TSC and AAI. In addition, face-to-face and telephone interviews were conducted with the senior leadership from both companies to better understand their views and concerns on the integration.

“The results from the culture integration assessment took me by surprise. It pointed out, in a very quantitive and visual way, the areas that we had overlooked in our traditional integration assessment. But it didn’t take us long to plug this new information into our plans.” - Ellen Lord, Integration Manager

What quickly emerged was a graphical snapshot of the differences and similarities of the two company cultures, which showed visually some key culture integration issues that had previously been unrecognized as posing potential risks for the integration.

During a presentation to the senior team of TSC, the information from the Culture Snapshot™ sparked a lively debate that resulted in a number of key actions:

• Restructure the senior team
• Clarify the organisation structure and recommit to making it effective
• Expand the integration team to include more AAI members
• Review best practices at AAI and adopt some across TSC
• Improve the alignment of the newly expanded TSC senior team
• Implement a series of workshops at AAI on their new roles as members of the TSC family of companies
• Dramatically upgrade and expand the acquisition communication process

AAI is now fully integrated into the TSC family of companies and the acquisition has already begun to generate new business opportunities where the two companies are able to combine their business strengths to win significant new US Defence contracts.