Michael Schwartz will tell you that strategic acquisitions are about people.
Sure, the deal may begin with a focus on the business itself, as it did when MetLife’s vice president of dental product management began eyeing SafeGuard Health Enterprises Inc.
MetLife was looking to couple its preferred provider organization products with SafeGuard's dental health maintenance organization ones, providing customers dual options.
But Schwartz, who became SafeGuard’s president, knew even a strategically sound acquisition would fizzle if the deal didn’t have a foundation bigger than the basics.
“It tends to start with the financial implications of the business,” says Schwartz, who maintains his roles at both companies now. “Sometimes you’ve got to think broadly about this. It’s not just the financials: It’s the people. It’s the infrastructure. It’s the process.”
“Such an important part is assessing how the organizations are going to fit together. At the end of the day, it’s people and it’s the leadership. The underlying components … are really the folks that are going to make this successful.”
Schwartz looked beyond the books of business, focusing on setting expectations, understanding the culture and using regular communications to make the integration a success.
“You try to build trust and get feedback and have people engaged and bring the cultures together,” Schwartz says. “You do an enormous amount of that up until your close, and then you do more. Think about that as an ongoing commitment to the success of a transaction.”
Through the process, SafeGuard became a successful MetLife company with 2008 revenue in excess in $200 million. Here’s how Schwartz’s focus on people smoothed the acquisition.Establish expectations
If you want your people to be successful in a merger or any other process, you have to set clear expectations for them.
“Set the expectation of what you want, and it’s beyond just deal value,” he says. “It may be people and assets and platform and technology and customer relationships. Make sure you’re addressing that as early in your due diligence process as possible.”
You can set specific expectations, such as what you’re analyzing and what you’d like the outcome to look like.
“If you don’t know where you’re going, you shouldn’t be surprised that you don’t get there,” Schwartz says.
Once the goals are articulated, you’ll have a gauge for measuring how well employees do that. So those goals will become the metrics for judging individual performance and contribution as well as the success of the change.
“Be very clear on what’s considered meeting expectations, exceeding expectations or not meeting expectations,” he says. “It’s really important that you define what those measures are upfront before you do the transaction, because you want to be able to look back and know you were successful.”
When all the changes are swirling around you, you’ll be grateful that you took the time to set those metrics ahead of time.
“With everything moving around when you’re doing a deal like this and you’re new to taking over an entity and you still have a lot to learn you need a good radar screen,” Schwartz says. “That’s why, if we set clear expectations upfront of how people are going to be measured, that can tell us whether somebody is delivering on what we’re looking for them to do.”Do your research
In any change, you have to understand the issues your people are facing.
When it comes to merging people from different cultures, you have to interact with them so you can get an idea of what you are dealing with.
“Engage folks that are going to have the most insight into that culture, because you’re going to be under a time frame for how much learning you can do before you have to move on to other things,” Schwartz says.
For him, that wasn’t just the leadership team but also the human resources managers. Not only do they interact directly with employees, but they also have the best insight into the policies and guidelines that shape the culture.
“You can learn an awful lot just looking at what the company does on a more formalized basis,” he says.
Policies around vacation time and volunteer activities, for example, can indicate how a company feels about and treats its employees. Those people policies can reveal company values, like contributing to the community or finding a work-life balance.
Through conversations with the HR director, Schwartz also learned how SafeGuard employees communicated. He found out that many product and policy ideas came from internal entrepreneurs within the company’s inclusive culture.
That finding helped shape how he communicated with employees and predict how they might communicate back.
“Don’t lose sight on the work and effort that you need to do in due diligence to know exactly how to demonstrate your plan and be able to communicate effectively,” Schwartz says.
Of course, staying in touch with employees along the way will also help you gauge how integrated they feel. Pay attention to what people say and how they interact. From their responses, you can distinguish the followers from the stragglers.
“Some of the ways that you can see how effective you’re being in that cultural integration are: Are people actually talking? Are they asking questions?” Schwartz says. “Do people act like they’ve been told what to do or do they feel like they’re part of it? When you ask them a question, do they have an opinion?”Communicate changes
People going through changes in an organization don’t like to be left in the dark.
From the beginning, Schwartz set the stage for open, honest communication by promising employees he’d share everything he legally, morally and ethically could. He made sure to note that his commitment would hold true even when the news wasn’t good.
“People tend to manufacture the drama if they’re not given facts,” Schwartz says. “It’s not always going to be great, but acknowledge that and take the mystery out of it. That lets people have a more fact-based understanding of what’s going to happen. It is usually better than the drama they create by not knowing.”
Throughout the acquisition, Schwartz relied on communication to smooth the way. While this is a crucial part of due diligence before the deal closes, it’s also the bridge to a seamless integration going forward.
“We worked very closely with SafeGuard’s leadership pre-close to get out in front of, listen to and talk to every single employee in that company,” Schwartz says. “It wasn’t necessarily one-on-one, but we did an extremely significant amount of interaction. You don’t just get to the close date and start doing that.”
He didn’t reach all 400 employees individually. But he dug down to engage employees at all levels in multiple ways from typical town halls, written communication and Q&As to small focus groups and skip-level meetings, where managers interact with employees two levels down.
To reach a goal of integration, you need to communicate as a single, unified company. That means leaders from both sides should address employees together. At monthly town halls at each site, for example, Schwartz made that unity visible by presenting alongside a SafeGuard senior leader.
“People in these types of situations tend to look to the leadership at each company to decide how they feel about something,” he says. “They saw people speaking together. And that cascades down into the organization as people started being included.”
Of course, it’s not just the presentation but the message itself that matters. In any acquisition, employees will be anxious about the future. Alleviate those worries with transparency.
Even before Schwartz made final staffing decisions, he made sure to explain both employee benefit programs and severance packages to everyone. Get those “me issues” out of the way right away so people can move past worry and focus on their work.
Be very clear about your timelines for making those decisions, too. Schwartz found that employees usually imagined tighter deadlines than he set, so even if they were let go, there was some relief in how much time remained before the ball dropped.
Just as communication should come from a unified source, the message itself should be created through a joint effort. So Schwartz also gathered input from everyone possible.
You already have avenues set up if you’re using multiple methods to reach employees. All you have to do is request feedback through those avenues.
“You just have to ask,” Schwartz says. “It is amazing what people want to tell you if you just ask them their opinion and you actually care.”
Just make sure your employees understand why you’re asking. Sometimes their input will help shape the direction you take. And other times, the outcome is less flexible and the decision must come from the top maybe it’s already made. You may have to administer certain policies or regulations, for example, such as benefit programs. If employees don’t have a say, don’t ask what they want.
“Only ask questions when you’re willing to listen,” Schwartz says. “You lose credibility if you ask people their opinion and you’re not willing to listen.”
Whether it’s a decision-in-the-making or already made, you should communicate and give people the opportunity to respond. But asking for input often comes with the expectation that it will be used, so acknowledge the difference between course-altering input and response-gauging feedback.
“There’s a difference between communicating and asking,” he says. “I want to hear everyone’s feedback, but we were very, very clear whether we were asking for feedback because we could influence a decision or we were communicating a decision and listening to their feedback.”
Not only will you tap a wealth of diverse ideas you couldn’t come up with alone, but you start to build consensus toward future decisions when you ask for input.
“What that does is it makes the message ours versus theirs,” Schwartz says. “When you engage folks that way, they feel like they’re part of something. They’re aware of the direction we’re moving in. They feel ownership of that.”
How to reach: SafeGuard Health Enterprises Inc., (949) 425-4300 or www.safeguard.net