The Deal on Acquisitions Lies in the Details

The Deal on Acquisitions Lies in the Details

Paul Tucker

By Nick Wakeman, Staff Writer

The rapid consolidation in the information services industry has made acquisitions and mergers a rather common feature of the landscape. But company executives say much hard work still is required to meld the operations and cultures of two companies.

And those who have been through the process often cite three primary keys to success: Have a plan in place, pay attention to details, and do your homework.

"We do two types of due diligence," said Ray Oleson, chairman and chief executive of SI International Inc. of Vienna, Va., which has made four acquisitions since its founding in October 1998, going from zero to $130 million in annual revenue.

There is what Oleson called "hard due diligence," where the numbers are examined, contracts evaluated and accounting procedures reviewed.

"But more importantly, we spend a lot of time on soft due diligence," Oleson said. "We look at the intangibles." Such a review includes business plans, marketing strategies and how the capabilities of the two companies fit together, he said.

The idea is to develop a plan so that on the first day after an acquisition is completed, Oleson and his team can tell every individual in the acquired company how he or she fits into SI's business plan, he said.

Companies integrating acquisitions have to deal with duplicate facilities and personnel, reconcile benefit plans, transition customer bases and blend corporate cultures, said Cal Hackeman, partner in charge of Grant Thornton's e*Tech practice. Grant Thornton LLP is a Chicago-based accounting and management consulting firm.

"It is not an easy process," said Joseph Kampf, president and chief executive officer of Anteon Corp. of Fairfax, Va. The systems integrator has made three acquisitions since August 1997, growing from about $145 million a year in revenue to more than $500 million.

"You have to have an integration philosophy, and you have to have a team of people that work hard to do it," Kampf said.

But even with a plan in place, that does not mean that integration is completed quickly, executives said.

"We bought Techmatics in May 1998, but we didn't change the name until Jan. 1, 2000," Kampf said. "They now operate as the systems engineering group of Anteon; they are stronger, better and happier. And Anteon is a better company."

When Computer Sciences Corp. of El Segundo, Calif., acquires a company, it generally lets the acquired company operate independently for about a year, said Paul Tucker, vice president of corporate development. CSC, which brings in $9.1 billion in annual revenue, has made about 60 acquisitions in the last 10 years.

But that is not always the case, he noted. For example, CSC's most recent government-related acquisition was a $391 million deal for Nichols Research Corp. of Huntsville, Ala., in November 1999. But CSC already has stopped using the Nichols name.

"We are integrating fairly rapidly," Tucker said. Parts of Nichols are remaining independent because of requirements of government contracts, but other parts are being moved under CSC units that do similar work or have similar customers, he said.

While the integration process can last for months after the deal is completed, the process begins well before that, said David Langstaff, CEO of Veridian Inc. of Alexandria, Va.

"We have a vision of what we want Veridian to be in three to five years," he said. How a potential acquisition fits into that vision determines if Veridian will pursue the deal.

"It is better to find out if it is going to fit sooner rather than later," Langstaff said. Veridian has made six buys since February 1998, pushing the company from about $200 million in annual revenue to more than $600 million.

"We are committed to making these acquisitions into one company," Langstaff said.

People issues are often the toughest. "Employees always experience heightened anxiety," Langstaff said. "That's why we spend a lot of time talking about the values of our company."

The first 100 days after an acquisition is key for employees, he said. The integration process does not need to be complete, but "they want to know where you are going and how you are going to get there," Langstaff said.

"You have to move fast," added Marshall Mandell, senior vice president of corporate development at DynCorp of Reston, Va. Mandell has been overseeing the integration of DynCorp's $170 million purchase of GTE Information Systems LLC in December 1999.

Within 100 days after the deal was finalized, DynCorp had transition teams working on integration issues, ranging from how support functions would be melded to identifying future business opportunities. Some of those teams were led by GTE employees, he said.

"That sends a powerful message," he said. With GTE and DynCorp people working side by side on the integration, the acquired company feels like it has a say in how the integration will be completed.

When evaluating how an acquisition will fit into an organization, company executives look at subjective and intangible elements, such as company cultures and values.

DynCorp wants to preserve the culture of the companies it acquires, Mandell said. That culture, after all, is one of the reasons his company made the deal.

CSC also does not dictate a culture, but rather sees itself as "a melting pot" of cultures that changes as it acquires new companies, Tucker said.

Others, such as Anteon and Veridian, have a single culture in mind as they plan and implement acquisitions.

"We don't buy things and stack them up next to each other, and let them operate the way they were," Kampf said. Different cultures mean different business practices, and "therefore, we don't end up with the same business result," he said.

It is not necessary to buy a company with a virtually identical culture, but it is very important to find a company with similar values about how it treats customers and employees and how creates value for shareholders, said Veridian's Langstaff.

"Values are more fundamental than culture," he said. "You can have shared values and still have different cultures." Shared values are what a common culture can then be built on, Langstaff said.

"Corporate culture is one of the bigger challenges, because you are bringing together two groups of people," Hackeman said. "Generally, the acquiring company is the driver behind the corporate culture."

Communication is the key, executives said. "You have to get out there and talk to people," Kampf said. "It's change management 101."

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