HUB’s acquisition process in Poland lasted from November 2014 to May of 2016. It is a longer timeframe than originally predicted. Highlights of the process are listed on the
•Official starting date for the acquisition 7.5.2015
•Process expected to last 6 months
June 2015
•Fast start to negotiations
•First meeting with owner of the target
•Initial purchase offer, based on valuation & NDA
July 2015
•Target company notifies HUB that they aren't for sale
Figure 4. Timeline for HUB Poland acquisition process
43 3.8 Lessons learned
Finally, lessons learned documentation acts as a conclusion to the investigation of HUB logistics’ acquisition process in Poland. What could have been done differently to have a different conclusion for the negotiations?
People who participated in the acquisition process, all have slightly different viewpoints.
First of all, lack of trust was identified during the process. Trust between buyer and target started shattering when negotiations were prolonged. Polish want to do business face-to-face. Maybe the importance of this wasn’t fully understood, which started the growth of mistrust between negotiating sides. Another identified problem to address, was the excessive involvement of lawyers in the process. Inexperienced lawyers on the target side complicated the process unnecessarily in the beginning.
HUB sees itself as a fast problem solver during the negotiations. Polish business culture differs from the Finnish one. Slower and more bureaucratic decision making process was testing the patience of the buyer side. Here needs to be noted that the way of doing business in another country isn’t easily changed and the negotiation partner expects that their way of doing things in respected such as during the post-handover integration. The bigger can’t force the smaller to change to its’ ways by force. Negotiating agenda also played a role in acquisition failure. One interviewee notes that the agenda was too loose and concrete results were achieved slower.
Acquisition plan in Poland was an ambitious one from the beginning. Still, it was in line with HUB’s strategy and the choice of country and company were well executed. As a first-timer with an international expansion of such scale, HUB phased the fact that it is hard to prepare for such an enormous process. More employees and resources ended up being needed than was probably initially predicted. HUB did the right choice when hiring experts of Polish market to acquire lacking know-how for the process. All-in-all HUB did it’s best
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to cope with the changing negotiation conditions and to adapt to local business culture. This part is hard for any first-timer company involved in a cross-border acquisition.
HUB made the required resources available to achieve a successful acquisition deal.
Integration teams were already in place. So much was invested in the success of the process, that the interruption of negotiations came out of the blue. Members of HUB management later speculated why they didn’t terminate the negotiations earlier themselves. Experience on acquisitions could have helped to better predict the acquisition negation outcome. Finally, the possibility of chance affecting a negotiation process should also be taken into account.
4 RESULTS & DISCUSSION
Missing the point of view of the acquired company leaves room for speculation. The reasons behind target company’s decision to terminate negotiations can be only speculated. It might have been purely bad luck on HUB’s side. But more likely something happened in the target during the negotiation process that had already proceeded way longer that predicted. Over time the negotiating sides might have started losing motivation and commitment on the process. Maybe the signs of this have been too slight to notice or the sides were sort of living in denial for some time; refusing to see that the process was going to end.
Maybe the target lost trust and became suspicious. Acquired company was a family business with one family using all the power. This probably impacted the termination decision greatly since the final decisions always came from the owner. Having spent a lifetime building something, maybe in the end it was too hard to give up. Owners of the target company might have suddenly changed their minds over the future of their company. Maybe they had realized that their company had greater valuation than they expected or ownership was suspicious about getting their money back. Some internal change might also have occurred in the acquired company. With so many gate keepers even HUB might not have found out
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about such change. For example, changes in management might have made the target ownership to reconsider keeping the company.
Most of these theories were also proposed by people involved in the acquisition on HUB’s side until the end. This elevates a conclusion that there probably was mistrust on both sides nearing the end of the negotiations. This research would have greatly benefitted from learning the full story: what was happening on the target company? The termination of negotiations came very unexpectedly to me as well. Working title of this research had been until that point: Post-merger integration – Case Poland. The process never got that far.
Cultural issues and trust seem to be some of the most key factors here. Missing the target company’s viewpoint makes understanding them difficult. For example, what HUB might have seen as delaying negotiation tactics, maybe are common way of doing in Poland. It would be very insightful to continue building upon findings of this research. How will the experience from this acquisition process affect the next one where Hub is involved? Would it have made a difference if the target country was different? In the long term quantitative research would perhaps yield more universally applicable results since one iteration of an acquisition process doesn’t reveal much of the company’s acquisition success-capability.
Even bad luck could eventually have been the reason of an individual acquisition process failure.
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5 CONLUSIONS
Cross-border acquisitions are complicated processes. A lot of steps of increasing importance are involved (Chapter 2.7). More than half of acquisitions fail. Well-managed they are worth the risks involved because acquisitions are a way to make a market entry without pre-existing references or a major investment of time and resources is required to found a new company.
Despite the low success rates, acquisitions are becoming increasingly popular as a form of internationalization (IMAA, 2016).
HUB identified internationalization as a necessity for implementing the company growth strategy. Commitment to Polish market was sizeable, when a company with a double digit turnover was selected (Chapter 2.2.1). Market research was conducted with care and the target company selection process took two iterations so the synergy considerations were done with patience. Still, HUB was taking probably the biggest risk in company’s history to open a new market with huge potential.
A positive cycle occurred in the early stages of the acquisition process. Tempo might have been so fast, that optimistic estimates were made for the handover date (Chapter 3.7). First 4 months of the negotiation process went according to form with just minor disappointments like overvaluation of purchase price. Difficulties started after the completion of due diligence.
Major pitfalls that in part led to the termination of HUB acquisition process, start from cultural differences. Polish corporate culture appeared more hierarchical than the Finnish one. Negotiators had to be from the same management level to achieve meaningful results (Chapter 3.5). Busy schedules of owners and upper management and the physical distance made negotiation take more time and effort than was expected. Maybe the importance of face-to-face contact was underestimated and both sides became less motivated to keep up a
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regular and planned negotiation routine while the results stopped coming after the initial negotiation successes.
Lack of acquisition experience also showed at HUB. Time and resource allocation had to be rethought when problems arose. Complicated negotiations required know-how from the negotiation process itself (Chapter 2.2.3). Negotiation experience and clearly planned agenda proved to be useful during the process. One had to be even prepared to deal with lawyer-involvement in the process. Major progress wasn’t achieved with lawyers but with management of both sides meeting face-to-face. Personal chemistry then plays a role.
Cultural differences can be mitigated by employing experts with local knowledge. This also works with lack of acquisition experience: a mentor with prior acquisition experience can help to avoid most common pitfalls in an acquisition. These pitfalls include overestimating synergies, lack of communication, not addressing cultural differences, choosing the wrong target company, not utilizing due diligence and inadequate risk management (Chapter 2.7).
An adequate amount of resources was allocated to the acquisition process on HUB’s side.
The buyer hired locals and external consultants to cover the gaps in their know-how (Chapter 3.5). A new finance director was a welcomed addition to the team. Also a lot of thought was put to the integration planning. Post-merger integration was correctly identified as the most important step in the whole process. It is a shame that the process never got that far.
Both of the companies involved share some blame to the sudden interruption of acquisition negotiations that happened about a year after the acquisition had officially started. Lack of trust was caused by inadequate and maybe even misleading communication. Both sides had their reservations and insecurities which only grew in time. HUB tried to influence such development by making a great marketing video about its values. Another way to improve communication could be organization of corporate events, which act as a communication venue and help gauging the popularity of the merger among employees of the target (Chapter
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2.4.1). Regular and clear communication alleviates the concerns and anxiety employees involved in an acquisition have considering their position (Chapter 2.4.3).
By the end of the acquisition some of the risks involved had already started to being realized (Chapter 3.6). Loss of existing customer contracts was starting to happen or had already happened when major customer contracts of the target company were closing to expiration date. HUB didn’t have much in ways to influence the state of the target company while the negotiation was ongoing. In my opinion, the purchase price should have been altered to account for the loss of value in the target. Also, the ongoing negotiations were just consuming resources of both companies without concrete results.
On the positive side, HUB made a successful country choice and they are still committed into staying in Poland. HUB Poland’s main office in Poznan employs a small but effective team who now has the experience from one acquisition and will no doubt have more to come.
New customer acquisition is in full swing and a new acquisition target on the radar. One major change will probably differentiate the next acquisition from the first one; company size will be significantly smaller to mitigate risks. Seeking a new acquisition is still the best option going forward, since acquisition can offer so many benefits compared to founding a new business or leaving the Polish market.
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APPENDIX 1.
Interview questions send to HUB management after acquisition negotiations had been terminated.
1. What was your role during the acquisition process?
2. What reasons led to the failure of acquisition?
3. What could have been done differently?
4. What was successful during the process?
5. What does the future hold for HUB Poland?