Making Mergers Work

ASSOCIATIONS NOW, November 2005 , Feature

Summary: Research shows that three out of four mergers and acquisitions fail. An expert in organizational combinations examines associations at the one-, three-, and five-year mark in the merger process and identifies characteristics that herald a happy union.	Rating: Rate This Item 0 Comments

Mergers and acquisitions are among the most difficult events any executive has to manage. Indeed, research shows that three out of every four combinations fail to achieve their desired financial and strategic objectives. Many factors contribute to this dismal track record, such as setting the wrong financial terms or doing the deal at the wrong time. In our book Joining Forces: Making One Plus One Equal Three in Mergers, Acquisitions and Alliances (Jossey-Bass, 1998), organizational psychologist Philip Mirvis and I studied what distinguished successful combinations from those that failed. We found that the top factor that determines eventual success is the process through which the organizations are integrated.

 

While I have been involved in more than 100 corporate combinations, the reality of being a consultant means that I don't often get to see the results of my work. A typical postmerger integration project lasts several months, but the real impact of a merger may not be felt until years after the marriage. Here, I set out to find the true success factors for association mergers by examining the process and progress of three association mergers at very different stages of their integration.

 

A merger after one year. In September 2004, the Association of Crafts and Creative Industries merged with the Hobby Industry Association to create the Craft and Hobby Association (CHA). In addition to sharing overlapping goals and objectives, these partner organizations had 80 percent common members. The merger resulted in major governance and staffing changes (including the promotion of Steve Berger from executive director of HIA to chief executive officer of CHA) and the addition of new products and a major trade show. Today, CHA has more than 6,600 member companies engaged in the manufacturing, distribution, and retail sales of craft and hobby products.

 

A merger after three years. With their members supplying products to the same retail outlets, the Hearth Products Association and Barbecue Industry Association decided to merge in 2001 to form the Hearth, Patio, and Barbecue Association (HPBA). The international association now boasts 2,800 members, representing manufacturers, retailers, distributors, manufacturers' representatives, and service and installation firms. Carter Keithley, who was hired by the Hearth Products Association to lead it through the merger, became president and CEO of HPBA.

 

A merger after five years. The Vision Industry of America, an association of opticians and ophthalmologists, joined forces in February 2000 with the Optical Industry Association, which represented frame, lens, and frame-equipment manufacturers, to form the Vision Industry Council of America (VICA) with nearly 200 members. Like many industries, consolidation in the marketplace was affecting the memberships of both groups. In addition, each organization had been trying to provide similar benefits to their members but in different ways. For example, one group relied on annual membership fees for much of its budget; the other charged for exhibits at its annual show. With Executive Vice President and CEO Bill Thomas at the helm, the combined entity has used its much larger size and sphere of influence to strengthen its efforts in important areas such as government relations.

 

The Dating Stage

Each merger benefited from careful upfront planning. A full three years before forming VICA, the partners established a merger committee with three members from both associations and the two executive directors. The committee was able to deliberate and make some tough calls while the entities were still separate, sparing all involved the undesirable scenario of integrating too quickly and then having to undo some decisions. For example, initial plans called for two co-executive directors to lead the new entity. Eventually, however, planners realized that a single strong leader was needed to guide the association through the integration process.

 

"The decision to make a definite call at the top of the organization set the tone for further staffing decisions," recalls CEO Bill Thomas. "Everyone had a clear idea before the merger regarding what position they would have. In many cases, staff members helped write their own job descriptions."

 

The merging staffs created a lengthy, sophisticated document listing actions needed to unite the associations effectively; topics ranged from setting bylaws to configuring office space. Thomas stresses the importance of depersonalizing the merger deliberations: "We had a strategic plan, so everything we did aligned with that. When we stayed at a strategic level of what good this merged group could do for the industry, the planning went well. When people started injecting personal agendas, then things did not go as well."

 

Premerger talks also played a pivotal role in the association marriage that created HPBA. One side wanted to "live together" rather than merge outright. Moreover, a substantial size disparity existed: HPA had a budget of $4.5 million and a staff of 20, while BIA got by on a $250,000 budget and was run by an outside management firm. HPA people felt secure because of their size advantage, but as is the case in many combinations where people cast themselves in the roles of "victor" and "vanquished," they also adopted a domineering attitude. HPA staffers would question the value of the merger, and BIA members were ready to walk away from the deal.

 

Current President and CEO Carter Keithley, who has been leading HPBA for the past three years, intervened. "I flatly said to the then-key leadership that I thought we were making a terrible, terrible mistake by walking away," he notes. Leadership from both associations came together in a series of discussions to set strategy and negotiate terms. The talks proved productive, and both sides recognized that a full-out combination was in the best interest of both associations' members.

 

One decision that still plagues Keithley, however, was the characterization of the relationship as a merger. "In reality it was more an absorption than a merger," he explains. "BIA members worried about their representation before the combination, and there still remains concern among some members. We go out of our way to do analyses that show we are representing both constituencies."

 

Early merger discussions were critical to the formation of the Craft and Hobby Association because of flagrant hostility between the partners. "We had one industry but two different associations competing with each other and trying to create friction by touting they were better than the other organization," says CEO Steve Berger. "There were bitter relations between the two associations and outright animosity between the chief executive who preceded me and the management company running the other association."

 

A perceived power play by the head of the management company to run the merged entity was not well received by either group's board of directors, clearing a path for Berger to proceed carefully. Rather than force his way in, especially since he was new to the industry, Berger let a task force--composed of three members from both sides--take the lead in ironing out key integration issues. He also hired an outside consultant to advise everyone on policy governance.

 

"As a new leader, you don't want to get drawn into all the mudslinging," cautions Berger, "Bringing in an outsider on an interim basis allowed the board to focus on board issues and me to focus on CEO issues."

 

Managing the Marriage of Cultures

Even with the most careful planning and best intentions, us-versus-them dynamics flare in any merger. HPBA's Keithley is quick to note that the biggest issue confronting his merged organization--even after three years-- is culture clash. "The acquired people had to be fully satisfied that they were getting the full attention of our staff," he acknowledges. Keithley formed ad hoc caucuses--interest groups, as they came to be called--to address particular concerns and interests around matters such as membership and trade show operations. What initially were monthly teleconferences became every other month, then quarterly. Only now are the caucuses about to wind down.

 

Bill Thomas was even more proactive in managing culture clash during the vision industry merger five years ago. He took his staff offsite for a retreat to discuss the cultures of each partner organization and to explore the type of culture desired for the new organization.

 

Staffers participated in role-playing exercises to prepare to work together and created guiding principles for the new association. Underlying this proactive approach was acknowledgement that culture clash is common, expected in any merger, and--when properly managed--can be a positive springboard for creativity and diversity in a merged association.

 

Along with the memberships and staffs, an association merger requires integration at the board level. The Craft and Hobby Association began with an unruly 32-member board--all 16 board members from the combining organizations. While attrition already has pushed the number down to 21, leaders expect that reaching a target of 16 board members will take until 2007. My own experience in working with newly formed boards to develop effective teamwork suggests that this could slow the integration progress. Once a merged board arrives at its final size, it still takes several months (and sometimes years) for the board--and, subsequently, the rest of the organization--to settle into a one-team mindset.

 

Beyond the Honeymoon

Even though the CHA merger is barely a year old, CEO Steve Berger already asserts the organization is reaping benefits that range from larger annual shows to increased educational offerings. He points out, "We are a lot more focused on the things we need to do to drive the industry rather than competing with the other association."

 

Meanwhile, Carter Keithley measures the success of the three-year-old Hearth, Patio, and Barbecue Association in a variety of ways that all include the word more: more members, more money, and more services in government affairs and elsewhere. HPBA also has enjoyed more media attention of its trade show than before the merger, especially from outlets such as cable television powerhouses HGTV and the Food Network. But Keithley also tracks merger progress in another way--member satisfaction. "The members who initially whined about the merger and threatened to leave are nowhere near walking away. They realized that we are stronger as a combined organization than as separate entities."

 

And from his vantage point five years out, CEO Bill Thomas sighs with relief as he tallies up the new members and programs, greater member involvement, and stronger financial performance stemming from the vision industry's merger. He also has conducted periodic surveys of VICA members to assess the impact of the merger.

 

"We have delivered on our strategic plan," Thomas concludes. "We have been able to concentrate our resources on operations and advocacy as opposed to administration. We have put $4.5 million a year back into the industry with our services since the merger."

 

Power plays and culture clashes can be expected in any merger. When ignored or otherwise improperly managed, the result can be a merger made in heaven that transmogrifies into a honeymoon from hell. However, as these three association cases show, when acknowledged and addressed, these dynamics can result in a lasting union that is truly more than the sum of its parts.

 

Mitchell Lee Marks holds a doctorate in organizational psychology and heads  JoiningForces.org, San Francisco. Marks advises on organization development, team building, executive coaching, and the planning and implementation of mergers, restructurings, and other major organizational transitions. His books include Charging Back Up the Hill: Workplace Recovery after Mergers, Acquisitions, and Alliances (Jossey-Bass, 2003) and Joining Forces: Making One Plus One Equal Three in Mergers, Acquisitions and Alliances (Jossey-Bass, 1998). He is a faculty member at the College of Business at San Francisco State University. E-mail: mitchlm@aol.com