Additional Case Studies

(Merchant e-solutions, Inc. acquires Power Solutions, Inc. October 2000)

This case study involves a bankcard services corporation merging and acquiring an ecommerce corporation to increase its product offering and ultimately to convert its traditional brick and mortar business into a high tech. Company for higher valuation.

Problems that developed in the transition:

1) Uncertainty:

Employees did not know whether their positions would be eliminated or not. They were promised that no cut backs would occur; then, two months later, two representatives were laid off.

Fear of unemployment started to spread. Extensive meetings were requested and took place with the employees and eventually hesitation in the sales representatives pitch began to appear; consequently sales dropped. With that in mind psychological traumas started to occur, feeling of restlessness and loss of confidents was one of the end results.

2) Vagueness in objectives and responsibilities:

Both management and entry level employees of the acquired company experienced conflict of duties. Management had no clear measure of their leverage; consequently, goal and responsibilities setting were weak. Promises to the employees were made that had to be retracted, duties were requested that once again had to be rejected. Usual responsibilities were constantly questioned, and most decisions had to be altered. Loss of control took effect and shortly thereafter so did credibility.

Management had to deal with new policies that never existed nor provided. Employees had to deal with cross selling issues that included stepping over other existing distribution channels and protocols. Existing sales channels changed on monthly bases. One of the biggest things I have learned as a sales representative is that change is good but change that takes place too often creates chaos. In my management career, I learned that sales people tend to think in the box, they have a hard time getting started, then once they get the method down to a science, they become comfortable, productive and confident.

3) Disorganization occurred in several sections of the business:

• Company Meetings: Were constantly delayed and cancelled due to receiving unscheduled management meetings from the acquiring company.
• Scheduled appointments with clients were always altered.
• Training was put on hold for months.
• Implementation and delivery of services and products were delayed.

Needles to say, customer service was affected negatively and additional external pressure on the sales department occurred.

The Aftermath

1) Decreased employee productivity: some staff repetitively came to work late, took elongated lunch breaks, left early and requested personal and sick leaves for interviews.

2) Increased insubordinations: The sales staff lagged in reporting and forecasting. They felt comfortable in refusing to carry-on requests and tasks by management due to having the acquiring company's human resource department giving them that ability to do so.

3) Dilution of upper management time and duties occurred in a couple of ways.

• Due to increased complaints, upper management had to spend tremendous one on one time with employees.
• In letting go of some of the employees, a lot of the entry level responsibilities had to be delegated to upper management. At one point upper management including myself VP of sales and marketing had to carry on the following responsibilities:

• Management
• Recruiting
• Collections
• Customer service
• Answering phone calls
• Sales
• Marketing
• Creating the sales infrastructure that included 3 newly established sales channels
  • a. Direct sales via 1099 reps
  • b. Telemarketing
  • c. VAR channel

4) Increased legal liability: The acquiring company started laying off employees. The process was done in an unconstructive manner. Employees were promised security but shortly thereafter another employee would loose their position. Employees that were laid off in an unconstructive way looked at the acquiring corporation as a gold mine, a quick way of making money through a legal angle. Obviously as legal issues came up; upper management invested more time and legal overhead.

Conclusion to the aftermath

With out an outside merging consultant, there is no way to avoid the issues mentioned above. Mergers and acquisitions are energy draining procedures. The acquirer will not have the time or recourses needed to pay attention to such detail oriented issues.

Such problems will cause:

1. Extensive increase to the acquirers burn rate
2. Increase in legal liability
3. Dilution of human resources

The Solution

1. Understanding the acquiring companies exit strategy
2. Organization and planned integration of distribution channels
3. Human resource consulting in constructive termination or lay-offs
4. Consulting in human recourse requirements
5. Understanding the different personalities that exist in the merger
6. Constructive one on one counseling
7. Group counseling and more
8. Status updates