Alyona Turdakova, the head of project office of ER-Telecom Holding JSC, shares what you need to know if you want to perform an M&A transaction and how a project management system can help with such projects.
In 2014, our company made a stake on the acquisition of local and federal telecom operators and in the same year the first large transaction with Interzet company in St. Petersburg took place. In the process, it became evident that the integration of the acquired companies is a specific type of projects requiring specific methodology.
In 2016, the company acquisitions became regular, and as the number of projects grew, it became evident that the integrations are very hard to perform alongside with the current operations.
We created a project office in our company for implementing M&A transactions, and from 2016 it developed a consistent methodology and streamlined the processes.
After several transactions, the company acquisitions were put on the line. This helped to carry out transactions alongside with regular operations and with relatively limited resources without any delays in the decision-making process. Here I tried to outline the most important aspects that need to be taken into account in connection with such projects.
Understanding the Purpose of the Transaction and Development of an Integration Strategy before the Launch of the Project
In order to avoid errors during integration, it is important to understand at the start the purpose of the acquisition, which should define the approach to the integration. Planning is of critical importance, and project tools shall not be neglected. The boundaries and goals of the project that are clear to everyone, a quality plan and timely control also have effect.
Let me tell you about the specifics of the integration projects. As a rule, when buying another company, shareholders expect to get the following:
- Improve the current results due to synergetic effects, or
- Rethink the business model, acquire a new technology or product.
In the first case, as applicable to us, we buy the subscriber base, network and fixed assets. Such an acquisition does not change the business model of the company, but helps to intensify its presence in the region. Timeframe is very important here — delays in the decision-making process and conflicts between teams may lead to the loss of all the planned effects of the transaction.
Another option is buying a new business model, technology or product. Here the approach shall be different — it is important to preserve the key competencies in the acquired company, and working with people goes to the forefront.
Analysis of the Acquired Company
It can be said that the specifics of integration projects includes the fact that the team does not have the opportunity to elaborate the project in detail prior to the transaction, because the information about it is usually closed. We have to be ready that in the process ofintegration the actual indicators may deviate materially from the expectations that had existed prior to the transaction.
Readiness to the changes, operative taking of management decisions is a prerequisite.
Besides, every transaction is unique. In the course of strategy development, we assess the size of the company, the strength of the brand in the region, existence of products that are not typical to our company and the management team in terms of strong leaders. To understand whether the transaction with have an effect and whether our processes, technologies and network are compatible with the asset to be acquired.
Ultimately, the resolution about the acquisition is a matter of whether it is a faster and more economical way to get what you can create yourself subject to available resources and time.
Integration Team and Decision-Making System
First of all, we started with building the project team, which has a manager and a responsible decision-maker. These people are responsible for the project result and achievement of synergetic effects. It is important to choose a strong involved leader who will deal with resolving a lot of issues on day-to-day basis.
Then, a project team was created for each project, which included the employees of different functions: business, IT, technical and financial blocks. We have developed typical calendar plans, which show a clear delineation into first priority and further (integrational) tasks.
A special body was established for operative decision-making which gathered together in two cases: when moving to the next stage of the project or if necessary of make material changes. It included the representative of top-management — the people interested and having influence on the project.
The project plan was built according to the «gate» system, and the points of taking decisions and results of each stage became clear. The number of tasks (lines) in a calendar plan sometimes reached 3 thousand. The result of this work was the reduction of integration timeframe from 2.5 years, as it was with the first transactions, to 9-12 months.
Dealing with Cultural Differences between the Companies
It is important to understand that by acquiring another company you acquire not just income and new solutions, but also a different culture. The differences between traditions and cultures do not contribute to fruitful work.
Strong leaders can take away from the company whole divisions together with products and technologies. Sometimes it happens that the acquired company employs the professionals required by the business but they are absolutely demotivated by the transaction.
Informing the Staff, Open Position
It also should be noted that the key condition for the teamwork is communication. Often, without understanding the set goals, the employees simply «freeze» and the work does not progress. This is especially important for integration projects.
The employees from different companies do not know each other and often feel concerned because of uncertainty. The project office acted as a single link between our company and the acquired assets. Regular meetings, a single information environment, frequent communications, a single materials’ database — all of these mitigated fear and tension and contributed to the successful project implementation.
The company assigned persons released from operating activity and taking part only in the integration projects, which yielded immediate effect. A system of resource planning was introduced, owing to which we could flexibly transfer competent employees to similar tasks in other projects.
It is possible to evaluate the results of the transaction at least one year after the acquisition, because any project requires investments at the start. We have come across the most of difficulties during the integration of non-typical products and network upgrade. However, the most recent integration projects were completed with good indicators, and all the effects were reached.
From 2014 to 2019, we completed 40 mergers of legal entities in 16 cities. For Russia, this is an unprecedented number of acquisitions with a geography span from Ulan-Ude to St. Petersburg.
At the peak, the number of simultaneous integrations reached twelve. Only now we are becoming aware that the implementation of the project management system played an important role at that period of time.
They key goal, as I said earlier, may be the improvement of the current performance of the company, and in this case it is important to integrate the acquired entity into your processes, unify the products, and bring the organizational structure into compliance.
The boundaries and goals of the project that are clear to everyone, a quality plan and timely control have their effect. If you buy a company because of a new technology or product, it is important to preserve the integrity of the acquisition, as a rule, by isolating it as a separate division, and only then scale up the acquired product to the parent company.
A bright example of this approach is the transaction with the Novosibirsk company Novotelecom. In addition to direct economic effects, we managed to acquire the technologies and new business models — we have adopted the experience and achievements of our colleagues and launched the project «Video-intercom», which we are successfully scaling up in all the cities of our operations.
Also, we looked at our customers from a different angle, we became aware that our company needs transformation and that our key partner is our customer. In different divisions of the company there are projects aimed at improving the customer experience.
Now, having completed several integration projects, we can say that this experience has given us a lot. The acquisition of other assets allowed us not only to generate additional revenue and improve the indicators of the company, but also to get quite a different experience. We got a different perspective on the usual things, we started to think more about the customer, learnt to accept a different culture and could look at ourselves from the outside.