Making All the Right Postmerger Moves
Now in its eighth acquisition, Razorfish provides a how-to guide
The second in a two-part series
Mergers are like marriages -- the urge to merge sweeps companies up.
But making them work long term can be disillusioning for the starry-eyed.
Let's assume that you've found the right partner. Your cultures fold seamlessly
into one another (see Business Week's Frontier Online, February 5, 1999). The
vibe is right. You've agreed on a price. Now what? There are still hundreds
of details that can make the difference between a happily integrated team
and a bunch of accidental officemates wishing they had never met.
The bottom line in small-company mergers and acquisitions -- where the
object is often to acquire a skilled team in a strategic location or field
-- is that the new employees must be just as excited about coming to work
at the new company as the old -- or they won't stick around. To make
them stay, you need a detailed integration plan. Without it, you risk confusion,
bruised egos, and a fractured staff.
Razorfish, a New York-based company that provides Web and other digital
communications services to such clients as ABC Interactive and discount
brokerage Charles Schwab & Co., is in the midst of its eighth
acquisition since the start of last year. Razorfish officials say they've
learned the hard way what works and what doesn't when two companies become
one. Here are a few of the lessons:
Take charge: Jean-Philippe Maheu, who is in charge of integrating
Razorfish's acquisitions, says the company learned from its first acquisition
-- Avalanche, a smaller competitor in New York -- that it's important to know
who runs the new company from the start so you can get on with business. Maheu
says Razorfish tried to minimize the initial trauma of the merger
by keeping employees' salaries the same and letting everyone hold
on to their original titles. "We had two directors and two managers of
departments," Maheu says. It sounded like a good idea. But there was too
much polite indecision. Now only one manager leads each department. "Clarity
is more valuable than not hurting someone's feelings," says Razorfish CEO
Paint the old signs over quickly: After Avalanche merged with Razorfish,
it took a few months to get rid of the Avalanche brand. When Razorfish
bought Tag in Los Angeles and Plastic in San Francisco, Razorfish put its
imprimatur on immediately. What may seem deferential to the acquired company's
sensibilities, just confuses clients, the company found. "Don't slowly
paint over the sign," says Razorfish Chief Scientist Craig Kanarick.
Have a plan: Maheu has since developed 30- and 90-day action
plans for acquisitions. Some of the tasks on his list are fairly simple:
Make sure on the first day of business under the new marquee
everyone at the acquired company has new business cards and new E-mail
addresses and the receptionist answers the phone "Razorfish." Kanarick
also advises newly married companies to have a party in those first few
days so everyone can bond.
Get down to business: Also within 30 days of the acquisition, says Maheu, the newly
formed company has to develop a budget, agree on a market strategy, and
create a new business-development plan. Kanarick adds that it's crucial
to do a staff checkup in the first 30 days: Interview new staff, and
send someone from the acquired company to talk to the original staff to
help them understand what's going on.
Prune clients and round out staff: The hard stuff kicks in on the 90-day
plan: If the acquiree has clients that aren't paying or are otherwise money-losers,
the company ditches them or the terms of their deals are changed. Razorfish
then creates a staffing plan. Maheu says that to take on bigger projects,
smaller, acquired companies need to add people and fill in the holes. The
next step is to help them pitch to more substantial clients and to take advantage
of the Razorfish name and resources. Len Sellers, who started Plastic,
the San Francisco company that Razorfish acquired this past spring, says his company
used to handle $100,000 projects. Now, it manages deals worth as much as
$1 million for clients such as eBay, the online auction company.
Make the new staff feel important: Merged entities have to worry
about retaining their newly acquired employees. One way to do this is to take
people from the purchased company and give them positions of power in the
joint entity. When Razorfish acquired Avalanche, it used one of Avalanche's
founders, Peter Seidler, as a role model. Seidler retained his title of
chief creative officer when he came to Razorfish and was given a conspicuous
amount of responsibility. Avalanche employees felt that their guy was important.
That was key, according to Maheu.
Even so, after the acquisition, some former Avalanche employees sensed
that they were not as crucial as they had been at the smaller company.
For example, says Kanarick, the best designer in the acquired company may
be the No. 4 person in the larger, merged company. Such issues need
to be addressed. Seidler says his former team members were assured that they
could move up quickly because of growing opportunities at the new joint
entity. Some salary adjustments were also made. He says only one person
from his 25-person staff left in the past year. That's no small achievement
in a job market that offers so many alternatives.
By Sherrie Nachman in New York
Part One: Melding Cultures: No Easy Task When Two Companies Merge