Can This Merger Be Saved?

Author(s): Cliffe, Sarah

Source: Harvard Business Review; Jan/Feb99, Vol. 77 Issue 1, p28
NICK CUNNINGHAM HAD BEEN against the Beauchamp acquisition from the
beginning. Nick's company, Synergon Capital, was a U.S. financial-services behemoth,
constantly on the lookout for acquisitions. Typically it acquired turnaround candidatessmall companies with established market positions and poor management. But
Beauchamp, Becker & Company-a British financial-services company with a great
history, strong profits, and an extraordinarily loyal client base of wealthy individualsdidn't fit that description at all.
Nick told his boss, J.J. d'Amato, exactly what he thought. "We'll have to pay too much,"
he said. "And our cultures are completely different. We don't play the same game. They
don't care at all about growth."
J.J. scoffed. "Stop being such a wuss. Let's just do it. I'm sure we can find some money
they're leaving on the table." J.J. was rising fast in the company. Listening to subordinates
was not among his strengths.
"I'm not so sure," responded Nick. "This isn't a dog that no one wants, run by amateurs.
They know more about their customers than we ever will. They're different."
"You worry too much about the soft stuff, Nick," J.J. said. "Relax. We won't force them to
change that much. You'll figure out how to make the numbers."
The Synergon Style
Nick had been with Synergon for three years. He'd signed on because of the company's
powerhouse performance. Synergon's acquisitions style was legendary. It used a crack
team of financial auditors and operations professionals in the due diligence phase to
figure out where it could add value. Every team had a "war room" at corporate
headquarters with charts, fax machines, computers, and phones. It was staffed around the
clock until the deal was done. The team prided itself on identifying every nickel the target
business took in or spent.
After Synergon closed a deal, its integration machinery took over. Within weeks, it would
close the acquired company's back-office operations and shift work to the nearest
Synergon office. Since the acquired company was usually badly managed, Synergon
would fire most of the management team within 12 months. Internally, they called this
tactic "neutron bombing." The people were gone; only file drawers and contracts
remained.
Synergon relished its rough culture. Due diligence teams were called "commando
squads"; its members got 18-inch bowie knives with their names and that of the acquired
business engraved on them. Negotiating teams got silver-plated sledgehammers if they
closed a deal at a price lower than the figure initially quoted to the board. Operating

managers who achieved an acquired business's earnings and productivity targets in the
first year got 12-inch-long models of a piranha.
Synergon's CEO swore that a "take no prisoners" approach was vital to survival. "The
marketplace is war," he told new M.B.A. recruits. "That nickel you see at the end of the
negotiation table belongs to us. Get it. It's ours. There may be some collateral damage
along the way, but it's our damn nickel."
Sometimes Nick found himself at odds with this culture. It's not that he wasn't
competitive, but he had a more thoughtful side than many of his colleagues. He was
worried that the Synergon style would someday get in its own way when the company
was faced with a situation that didn't fit into its game plan. And Beauchamp, it seemed to
him, might be that situation.
A Marriage Made in Heaven
Still, the acquisition made sense. Beauchamp would give Synergon a foothold in Europe a key part of the company's strategic plan-as well as access to extremely desirable
customers. And the deal could make sense from Beauchamp's point of view, too. The
company needed to grow, and Synergon had deep pockets, plus some areas of expertise
that Beauchamp lacked.
But the acquisition made Nick nervous because it would only work under two conditions:
first, if Beauchamp's customers remained happy and, second, if Julian Mansfield,
Beauchamp's longtime managing director, stayed on board. Mansfield was smart,
sophisticated, and polished. Synergon could learn a lot from how Mansfield managed his
clients. The problem was, Synergon didn't think in terms of learning.
Nick pointed out this problem one last time before J.J.'s acquisition pitch to the board, but
to no avail. "Let it go, Nick. We're going to jam this through and they're going to love it."
And J.J. was masterful before the board. "We will leave Beauchamp alone. It's a great
cross-selling opportunity for us," he said, looking deferentially at Synergon's CEO,
Norman Waskewich. "And Nick will help get them focused on growth."
J.J. was on a roll. "Synergon's management and Beauchamp's customers. It's a home run.
A slam dunk. They will learn what we've always known: You have to grow or die. They
will grow."
Right after the meeting, J.J. set the rules. Pointing a finger directly at Nick, he said, "You
have three tasks. One, Beauchamp doubles its earnings in three years. They need a 20%
pop in income in year one. Cut some heads and we'll get there. Two, no blowups at
Beauchamp. Nada. The press and the analysts are all over us on this deal. Third, I want
their big customers so I can pitch our products. And I want Mansfield to get me in. If he
walks, they walk, and our pitch walks. If Mansfield walks, you walk out right behind
him. Got it?"

The Venerable Beauchamp

Soon after the deal closed, Nick made a quick trip to London. He met briefly with Julian
Mansfield and the rest of the senior management team. There was a lot of polite talk
about Beauchamp's wonderful traditions and the "significant synergies" that existed
between the two companies, but not much of substance occurred.
Nick scheduled a second trip for a month later-he was facing the end of Synergon's fiscal
year and couldn't get back any sooner. In spare moments during the ensuing weeks, he
studied Beauchamp. The place was impressive, no doubt about it. Beauchamp was an
unusually stable company. Its management team consisted of 16 people who'd worked
together for more than a decade. The 700 associates routinely shifted from one project
team to another to handle a surge in business, solve a customer problem, or get a product
to market. The turnover rate was a mere 4%, and managers averaged 21 years of
experience with the company. (In contrast, Synergon's turnover rate was 21%, and the
average tenure for managers was 6 years.)
Julian Mansfield presided over the whole like an old-fashioned patriarch. His title was
managing director, but he was Beauchamp. He was the godfather of dozens of associates'
children. He was revered within the company for his business sense and character, and he
was well known in charity circles for his generosity.
As Nick was pondering his second face-to-face meeting with Mansfield, the Synergon
integration team swung into action. First, Synergon's HR director informed his
counterpart at Beauchamp that Beauchamp's Associate Bonus Plan, which provided every
associate with at least a modest bonus, would be scrapped. Synergon's Big Bang Bonus
Plan, which favored senior managers who achieved high earnings growth, would take its
place. The change would reduce the bonus for 70% of Beauchamp's associates.
Second, Synergon closed the cafeteria that for years had provided Beauchamp employees
with a free lunch. Employees complained to one another as they ran out at lunchtime for
take-out food. Julian was mortified that the "car ladies," who'd been with Beauchamp for
years, were let go with only a minimal severance package.
Third, Synergon's finance director informed his counterpart that purchasing and travel
would now go through Synergon vendors. Agreements with vendors in these areas were
geared toward big-ticket items, such as executive office furniture or cross-Atlantic
airfare. Although Synergon's arrangements kept its own costs down, they were bound to
push Beauchamp's up, since the smaller firm used regional carriers with lower local fares.
People at Beauchamp were upset that longstanding relationships with local suppliers
would be eliminated.
To top it all off, Synergon was now requiring multiple approvals before granting
customer credit; the approvals would be based on customer industry, contract
profitability, customer location, and the type of asset offered as collateral. Beauchamp
salespeople had always made credit decisions with a conversation and a handshake.
Under the new regime, Beauchamp received its first customer complaint in living

memory when a valued customer of many years lost a deal while waiting for his loan
approval to come through.
Julian and his longtime executive assistant, Olivia Carlton, heard daily complaints, too,
about the new reports and forms that Beauchamp managers had to fill out for Synergon
officials, who never introduced themselves or explained why the forms were necessary.
Synergon was asking for numbers on market share, competitor data, cost reductions,
productivity increases, and risk allocation.
When direct communication did take place, it was horrible. The day before Nick's second
visit, a Synergon financial auditor brought Olivia to tears. "Fax me the F-14 sheet in the
next hour or I will be in your face Monday morning and your boss will hear about it. Get
me my report."
The Honeymoon's Over
When Nick walked into Julian's office on his second visit, the older man rose and shook
hands, trying to be cordial, but he was clearly annoyed. After some initial small talk, he
said to Nick, "Let me ask you a question. Is Synergon trying to offend me?"
"Goodness, no," said Nick, taken aback. "What do you mean?"
"Well, you can see that I'm not a small man," answered Julian. (Indeed, he was well over
six feet tall.) "As you know, I travel a great deal, and I happen to suffer from arthritis. Yet
my assistant has just informed me that I'm not to fly business class to Paris. Company
policy doesn't allow that without permission from my superior. That would be you, I
expect... ?"
Nick stuttered out an explanation and assured Julian that the policy would be overridden.
Julian gazed out the window for a long moment, then turned back to Nick.
"Look, Mr. Cunningham, we can help you reach these absurdly high target numbers
you've set, but not unless you let us do our work."
"What do you mean?" responded Nick, genuinely puzzled.
"I'll show you what I mean," said Julian, opening his desk drawer and pulling out a twoinch pile of faxes. "These are just a few of the vital, urgent, ASAP messages we've
received from your people. Do you have any idea how time-consuming and idiotic these
forms are?"
Nick recognized most of them. Some were administrative: the travel center asking
whether the "new employee" would prefer nonsmoking hotel rooms and what kind of
airplane seat, aisle or window.
Some were procedural: HR asking that performance evaluations be completed for all
subordinates in SEPR format-which meant Synergon Employee Performance Review, but

there was no explanation. And the S-EEO-1, which asked Beauchamp to classify
employees by race, gender, and level, something not done in the United Kingdom.
Some were financial: the B-52s, growth projections for the next three years, and the M16s, cost-reduction sheets for the past 12 months.
All told, several dozen requests from t4 different people at corporate. Nick recognized
this as routine work that Synergon managers did at home on Sunday afternoons.
"I'll do my best," replied Nick. "I can get someone over here to help you out. But this is
how we operate."
Mansfield narrowed his eyes and said with barely concealed anger, "I'm sure it is how
you operate. But if your operations mean that my company-which was ticking along very
nicely, thank you-becomes paralyzed, then we both have a problem. You people have a
very odd notion of what 'leaving Beauchamp alone' means."
After a brief pause, he went on. "You know, Mr. Cunningham, you seem like a nice
fellow. But I've been around too long to have to put up with this much impertinence. To
have these boys you call auditors insulting my assistant is, frankly, something I can do
without. My wife's been on at me to retire for the last year or two and, I must say, that
idea is starting to sound attractive.
"I have a suggestion. Why don't you take the rest of the day off? You can get over your jet
lag. There's a Sargent exhibition at the Tate that you might enjoy, and Miss Carlton could
probably get you some theater tickets for tonight, if you like. Why don't we meet
tomorrow morning, after you've slept on it, to talk about the future of the company."
Can the Beauchamp acquisition be salvaged? How should Nick prepare for
tomorrow's meeting with Julian?