The deal business has been becalmed since the market peak of 2007, and John Bogush sees no end in sight.
“There is a buy and hold mentality that is more pervasive now,” said Bogush, a partner with the Dallas-based Highland Group, a consulting firm focused on operational issues in industries including manufacturing, mining, financial services and aerospace.
As head of M&A for the firm, he works “the private equity channel,” finding his challenges in translating executive-level decisions into behavioral changes on the factory floor. It’s all well and good for a sponsor to develop a new business process with the CEO of a portfolio company, he said. “But getting the guys on the second shift to execute that, neither of those two guys is going to do that.”
Carveouts call for a very discrete set of skills to pull off a successful operational integration for a newly independent division, he said. “Most of what we do is in the ordinary course of business. Change of control is extraordinary course of business.”
Buyers often think they can ease the transition by working out transition services agreements under which the seller continues to provide accounting or human resource services to the carved-out operation, but such arrangements call on support services to act as outsourced services, a role that many corporate divisions are unfamiliar with, and uninterested in, he said.
“Close to 100 percent of the time, they could care less,” he said. “When you take it from here and put it there, the dynamic changes.” In general, sponsors would do better to build out their own support operations for newly acquired carveouts, he said.
The same is true in integrating an add-on acquisition to an existing platform, where the operating executives must cultivate a common language, set of rules, even a system of beliefs, to help the staff of the add-on fit in with the established practices of the platform company. It amounts to introducing a whole new culture, he said. “It may be totally appropriate, but it’s a whole lot trickier.”
Highland Group’s typical engagement on a performance improvement assignment is 22 to 28 weeks. “Half or more of that time is around behavioral change,” he said. “I’ve got to teach a man how to fish.”
After analyzing a company’s operations, the firm must make the case why a new way of doing things is better than the old one, then conduct a proof of concept and roll it out to the broader organization. Change can be difficult, he said. “We’re never anybody’s first choice. They call us when they’ve tried everything else.”
Twitter handle: @highlandglobal