Although people are considered to be a company's most important asset, Joseph Mills, Chairman of the Board at Caliber Midstream Company says acquirers can sometimes get fixated on other aspects of a deal — as someone who works in the energy sector, he says that can include the oil and gas properties, the land that's owned, the geology, or what basin is being operating in.
"But quite frankly, it's all about the people. We can't do what we do without having those people," he said at the Houston Smart Business Dealmakers Conference.
Having done close to $30 billion in M&A in his career, he says a buyer can take the best deal they're ever seen and destroy it by not integrating it properly.
He says there are four phases of any acquisition. Though most focus on the first three — evaluation, due diligence and closing — the most important part of any successful M&A transaction is integration.
"Because, quite frankly, all the synergies you can put down, all the great things you think you're going to accomplish with it, but if you don't actually do it, then quite frankly, the value that you thought you're going to get doesn't materialize," Mills says. "So, a lot of my companies, we really spent a lot of time talking about the integration."
In his companies, he says accountability through the integration process is critical. To help that go smoothly in his deals, he says he’s appointed a czar of integration. That person was at a high enough level that they could reach across the organization and hold everyone accountable to getting the integration done because it’s such a big part of whether or not a deal succeeds.
“We were a serial buyer," he says. "As we found, your VP of Business Development, he's moving on to the next deal. He's the wrong guy to integrate. So, you need somebody that's accountable, that is going to hold everybody else accountable on the integration part. It's all about the people at the end of the day. It's the culture and how you're going to get those synergies out of successful acquisition.”
The czar reported directly to Mills and he a lot of authority to hold people accountable. His primary job was the integration — making sure the checklists were done, that people had resources and were being held accountable to getting it done.
“These were all very large acquisitions — billion-dollar-plus-type deals,” he says. “But even the smallest deals, you got to focus on that integration. Truly one of the most important parts of any successful acquisition is how you integrate it into your company successfully.”
One of the things they found was because they were fairly large and operating across multiple divisions and areas, they couldn't build a business development group that is an expert in everything. So, they kept their teams fairly small, and they would draw from the divisions the expertise that was needed to do the evaluation. The integration people were a small, tactical group. He says they found that auditors were the best integrators because they cross across all aspects of the business. And while they're not the experts in every division, they understand it. And they're also project managers.
"And integration is a project management skill," he says. "That's really what it is. And we found that auditors were usually the best at doing that because they have that project management-type mentality. So, they would go in and hold people to accountable."
At the first opening, he says they would spend a lot of time in the acquired business looking at the other side — their staff and capabilities.
"One of the things that I used to always talk about with my team is there's a reason we're buying this company," Mills says. "It isn't just the assets. There's something that they do really, really well. That's what makes us interested in them. And it's probably their culture and/or some of their systems, some of their processes. And I was always a big believer, yeah, we may be the buyer, but that doesn't mean we know at all, quite frankly, we're growing. And so, we would always endeavor to bring in the best of whatever the company we were buying, whatever they did really, really well, we would try and incorporate that into our company."
He admits that's easier said than done — whether it's the culture, systems or processes. And sometimes that process is an evolution. But he says they would always try to high-grade, keeping the best talent and letting others go.
"My employees knew that they had to fight for their jobs, just like the people we were acquiring," he says. "And it's just a fact of an acquisition: Not everybody's going to survive."
Important to the process of integration, especially when layoffs are involved, is communication.
"The one thing I would emphasize to each of you as the CEO or senior executive of your company, your people are not stupid," he says. "If they were, they wouldn't be working for you. They're very smart. They absolutely get it. Hopefully, they're adults. And you got to talk to them."
It's important to communicate where the leader is trying to take the company and be honest with the employees about their role in that.
"They know that not everybody's going to survive," he says. "Maybe you need everybody, maybe you don't. And if you don't, be honest with them, and say, 'Look, we're going to high-grade. Some of you won't make it. We'll have a reasonable severance package for you,' and shake their hand on the way out the door. I really believe that's the way you treat people."
Something else he says is important to emphasize is moving fast.
"I've seen too many companies, though, they don't have a well-thought-out plan on the people side," Mills says. "They'll make the acquisition. They'll close on it. Six months go by, nine months go by, a year goes by, and then they figure out now we need to eliminate all these people. Quite frankly, during that time, a lot of those people are pissed off because they don't know, they just don't know what is going to happen. And so, a lot of times they get sour. They become a bad apple in your organization. They start bad mouthing. I'm a big believer (in) move swiftly, as fast as you can. It may not be day one, it may be day 30. But have a plan, communicate that plan, tell them. Say, 'Look, within the first 30 days, we're going to make some decisions. And then, if they're going to be layoffs, they'll happen in the first 30 days, the first 60 days,' and that way they at least know what to expect. Yeah, it's painful. Those 30 days are painful, those 60 days may be painful, but at least people know that you're going to tell them something. And once you do, people calm down. Then you can actually start to get back to business. So, I think the human side is really important, just treat people with respect, talk to them, tell them the vision and then execute on it; do what you say you're going to do."
