Clean Teams: The Fast Track to M&A Integration and Value

Printer version  PDF

by John Koob

The integration of people and people-support programs is critical to achieving the anticipated results of a merger or acquisition. As recognition of this certainty becomes more widespread, a growing number of forward-thinking firms are breaking new ground by using the “down time” between regulatory filing and the close of the deal to deploy “clean teams” charged with accelerating the speed and increasing the quality of integration planning.

Consider the following scenario: A company has completed a strategic business combination – such as a merger, acquisition, or joint venture (JV) – but capturing the value of that deal is taking longer than anyone had anticipated. Six months after closing, managers are still gathering information and developing plans for integrating the two operations. On the people side of the business, where most deals succeed or fail, progress is grindingly slow. It may take another four months to rationalize the compensation and retirement plans. In the meantime, the company is forced to operate two distinct plans and millions of dollars in cost synergies remain unrealized.

What’s more, productivity throughout both organizations has fallen noticeably. Absent concrete plans, employees are feeling insecure. Rumors flourish and morale ebbs as people spend less time working and more time worrying. Talented employees are accepting jobs elsewhere, taking experience, know-how, and in some cases valued customers, with them. Meanwhile, the CEO is growing increasingly impatient. Many promises have been made to the board and shareholders about the benefits of the deal, but as of yet they remain unrealized.

Capturing the value of a complex M&A deal is never easy, but if it’s to be captured quickly and well, integration plans should be ready for implementation on the day the deal is closed. This ideal arrangement seldom happens, though, because regulators in the United States, the European Union, and other global jurisdictions forbid acquirers from sharing competitively sensitive information – information that is critical to a rapid and wellthought- out integration plan – prior to deal consummation.

Fortunately, companies needn’t sit on their hands month after month while regulators process their information requests. By using a clean team, it’s possible to begin, and in fact complete (short of actual implementation), the arduous process of data gathering, analysis, and integration planning during the blackout period.

The term clean team originated in the health and computer sciences fields, where a designated work environment – a clean room – is sealed off to prevent contamination. In an M&A context, contamination refers to the disclosure of specific, confidential information that could affect competition between involved companies during the preclosing period, or in the event the transaction falls through. The clean team – operating under certain protocols and prior to regulatory approval or consummation of the deal – assembles, reviews, and analyzes sensitive, competitive, and other confidential data, then reports summarized or aggregated information to the business leaders, who are then able to make informed decisions about the transaction or the integration of the businesses – without being “contaminated.”

The clean team concept is gaining acceptance among attorneys and regulators responsible for handling antitrust matters. Companies that use this approach, especially to gather information on critical people issues, gain an enormous head start on realizing the full value of the deal.

In 2004, two large industry leaders signed a definitive agreement to form a 50-50 JV. Subject to regulatory approval, this JV would become the world’s second-largest producer of a popular consumer product. By design, the venture would control production, leaving marketing and distribution with the parent companies.

Among the JV’s key goals was the creation of a more effective cost structure. The partners had identified almost $450 million in potential annual cost savings, which they hoped to realize within the first year of operation. But no deal could be struck without first gaining approval from European Commission (EC) and U.S. Federal Trade Commission (FTC) antitrust regulators. And in this transaction, regulators had specifically warned that the two companies not share competitive data before official approval was granted.

Three consulting firms were contracted in 2004 to act as independent advisers – the clean team – to the JV. Mercer Human Resource Consulting was responsible for gathering and analyzing data from both companies and developing integration plans for all the “people” assets of the venture – but without violating the blackout requirements of the EC and FTC antitrust regulators.

To ensure confidentiality, the parties were careful to staff the clean team with consultants who had no current working relationships with either company and no possibility of future working relationships with either should the joint venture fail to be approved. Clean team members were permitted to talk with employees of the two companies, but they could not disclose one company’s information to the other.

The clean team shared aggregated data with the proposed JV’s steering committee. With strict adherence to all regulatory requirements, steering committee executives were able to review and approve many of the integration plans the team was constructing during the waiting period.

Getting EC approval proved difficult and time consuming, taking eight months in all. Approval from the FTC followed shortly thereafter. Had the companies waited for the approvals before sharing information, implementation of the JV’s HR systems, policies, and programs would have been delayed many months. Instead, the clean team approach facilitated the assembly and analysis of detailed data that resulted in decisions and concrete plans for implementation on day one of the JV’s operation, including: benefit and retirement designs for the new entity, with RFPs for those plans prenegotiated with vendors; a single payroll system ready for launch; and the design of an early retirement program to be offered to 2,000 employees immediately following close. The JV partners estimated that these predeal accomplishments put the venture between eight and 15 months closer to realizing targeted cost savings and strategic goals, resulting in an estimated additional savings of $300 million during the first year of operation.

Typically, merging organizations deploy clean teams in traditional areas of due diligence and integration planning, such as finance, operations, or in the more tangible areas of the “people” side of the deal, such as benefits analysis and harmonization planning. But clean teams can add significant value outside of those traditional boundaries. In fact, clean teams are an excellent way to address the cultural differences that often hobble integration.

While cultural differences between firms are often the most easily scapegoated causes of post-deal problems and regret, they are seldom examined in the run-up to the purchase agreement and closure. Due diligence is preoccupied with financial issues, sales and revenue forecasting, and technology sharing, leaving cultural differences as an afterthought. Consequently, when CEOs reflect on their merger experiences, they often wish they had given sooner and greater attention to blending the corporate cultures.

A clean team can provide the earliest window on identifying cultural differences, determining how those differences could affect integration, and developing plans for accommodating them. In fact, the sooner merging entities can get a grip on the dimensions of culture, educate their leaders about each other’s beliefs and ways of working, and create a shared vision of the future environment, the greater the likelihood of success.

A clean team can also begin the work of identifying sources of value in the participating companies and the type of organization and culture needed to deliver that value. This will educate functional integration teams about culture issues very early in the process – ideally, before they start detailed planning. The clean team can capture such cultural information by diving deep into employee thinking via focus groups, for example, and by discovering how policies are established within the merging organizations.

Structuring and staffing the clean team and creating reporting channels between the team and the host organizations require great care. As shown in exhibit 1, a proven and recommended structure focused on the HR aspects of the deal has a clean team reporting directly to a steering committee staffed by the HR leaders of the two parties. This connection is crucial to ensure that the clean team maintains its alignment with the strategic direction and operating requirements of the new entity.

The team also reports directly to executive-level leadership and does not assume a surrogate role, but instead partners with HR leadership. In a larger deal, it is likely that parallel clean teams devoted to other issues or functions (for example, manufacturing, supply chain, finance, IT) could also be reporting in this manner. In these cases a “clean” portion of the overall integration project management office would oversee and coordinate efforts among functional clean teams. In all cases, the functional leadership (as depicted in the HR leadership box of the exhibit) must be explicitly defined. To be effective, you need one clear leader – a “buck stops here” person. You want to avoid a “two-headed monster” situation, where co-leaders representing the two firms are making decisions but at the same time are essentially competing to see who will survive as the functional leader of the new enterprise.

Ideally, the parties would staff the clean team with their best and brightest managers and employees – those who know and understand their firms best and know how to get the needed data. But neither company can afford to lose its top people to months of confidential clean team activity. Plus, should the deal fall apart, employees – those who served on the clean team would not be able to work in their relevant business areas or for either party for a meaningful period of time.

In today’s global M&A environment, the most successful acquirers know they can’t wait for the deal to close to begin planning the integration. Companies that have demonstrated repeated success have started the thoughtful work of integration as soon as the preliminary targets are identified in the predeal phase.

Indeed, three factors determine the success or failure of a merger, acquisition, or JV. First, the underlying business logic of the deal must be rock solid. Whether the purpose is to gain market share, expand geographically, extend a product or service, or acquire intellectual capital, if the strategic rationale or basis for the venture is flawed, all bets are off. Assuming that the logic is sound, the second success factor is the price paid. Here any premium paid must be at least matched by improved post-merger performance.

If both these factors are managed effectively, that really only gets you to the starting gate, for once the deal is done, achieving the promised value comes down to integration. And that’s where clean teams can really shine.

Exhibit 2

John Koob serves as Mercer Human Resource Consulting’s corporate M&A services business leader for the South U.S. region and is a member of the Mercer Global M&A Services leadership team. Based in Atlanta, Ga., he works with domestic and international organizations to capture the full intended value of their business transactions. He can be reached by email at or by phone at 1 404 442 3236.