Integration planning critical to Rockwell acquisition outcomes

While acquisition prices and strategy tends to get the most attention on Wall Street, much of the heavy lifting that determines whether the acquisition delivers on its promise takes place in the integration phase.

Integrating a merger means fitting it into an organizational structure in a way that provides for such essential business processes as accounting, marketing, inventory management and manufacturing.

That's just the beginning, however. It also includes meshing the cultures of two organizations, building trust and creating new lines of authority and communication.

At least 11 major acquisitions have been completed by Rockwell Collins, the Cedar Rapids-based aerospace and defense electronics company, since it became an independent company in 2001. Steve Belland, the company's vice president of mergers and acquisitions, says the success the company has achieved through acquisitions owes a lot to having a formal system for evaluating and integrating them.

“Everything we do revolves around a decision-point process,” Belland said.

Those decision points, he added, run in alphabetical order from DPA through DPE.

DPA is a meeting between the company's head of strategy and the vice president of the relevant Rockwell Collins business unit to go over a promising acquisition target. It includes a discussion of what the target business does, how it would fit into Rockwell Collins's mission and the appropriate method of contacting that company's ownership.

“If we get the OK, typically I'll call the owner and ask if they're willing to discuss a potential strategic relationship,” Belland said. “If they are, we'll go to DPB and put an offer on the table.”

Creation of a preliminary integration plan begins between DPA and DPB, at which a decision is made to develop an offer. Belland said the integration plan begins early for many reasons, including decisions about who to involve in the integration team.

DPC is the critical decision meeting to decide whether to proceed with the acquisition and on what terms. It may involve chairman and CEO Clay Jones, depending on the target's size.

The serious integration planning takes place at DPD after the acquisition is a go, bringing in representatives of not only the acquired company and the Rockwell Collins business unit it will join, but also the various Rockwell Collins resources known as Shared Services that touch on all its business units, including human resources, E-business and finance.

Members of the integration group are required to complete internal courses in business integration before serving. Belland said the company has formalized the business integration materials in courseware that is available through the company's Learning Management System or Rockwell Collins University.

The integration team leader relocates to the site of the acquired company for the duration of the integration to oversee the process.

“Excruciating detail” is a term Belland does not use lightly in describing the integration plan created at DPD. It includes not only such heavy decisions as whether to consolidate manufacturing at another existing Rockwell Collins location, but staffing decisions - down to salaries and benefits, and performance expectations such as sales targets for the acquired business.

Keeping key people is also important in acquisitions. Belland said Rockwell Collins recognizes that the cultural adjustment can be harder for top executives such as founders, who had considerable freedom in their own organization.

Expectations are adjusted to that reality to maintain their talents and loyalty.

Extra attention is given to sustaining business practices at the acquired companies that contributed to their success and learning from them, Belland said.

The innovative business culture of Air Routing International, a high-service flight planning company acquired in January 2010, is one example. He said Rockwell Collins didn't integrate Air Routing International as deeply as it would a company with a manufacturing emphasis.

All the companies acquired by Rockwell Collins have been substantially smaller. The largest was Data Path, with annual sales of about $250 million.

Rockwell Collins refers to its acquisition approach as a “bolt-on/tuck-in” strategy because acquired companies can typically be joined into existing business units quickly without changing the overall focus or structure of the organization.

The integration process typically ends at DPE, Belland said. That decision point meeting is used to evaluate whether all the steps in the integration plan have been completed and to set an end point for the process.

M & A often involves reducing employment to achieve cost targets.

Robert Gettemy is a lecturer at the University of Iowa's John Pappajohn Entrepreneurial Center who sometimes speaks about his merger integration experiences. He was an early executive at Parsons Software in Cedar Rapids, which after being sold by founder Bob Parsons, was acquired by a string of software companies, learning companies and even the toy-maker Mattel.

The experience taught Gettemy the importance of having a person for every major function that will be integrated with a merger on the integration team. It also reinforced the importance of making staffing cuts aggressively, quickly and deeply if they will be needed.

Despite the human turmoil involved in staffing cuts, Gettemy said the emotional stress and lost productivity are worsened when companies try to minimize layoffs.

“It's like going to a doctor and waiting to get your test results for the employees,” Gettemy said. “They might not like the results, but at least they know and they can make plans.”

Acquiring companies more often make too few layoffs when integration begins than too many, Gettemy said. They consequently undertake repeated rounds of layoffs that prolong the uncertainty and worries that drag on productivity.

Among the other distasteful acts of integrating a merger, Gettemy says it may be best if the acquired company has a “super strong leader” to show them the door.

He said the leadership qualities that were a virtue when they were running the company can create a us-versus-them mentality when they are part of a larger organization.

List of major acquisitions by Rockwell Collins:

Rockwell Collins maintains a continuously updated list of companies it would be interested in acquiring to meet its business objectives. Here are some of the companies it's brought in.

•  Airshow Inc., a Tustin, Calif.-based maker of electronic map displays and other cabin electronics, for $160 million in cash. The company had annual revenue of $65 million and 350 employees.

•  NLX LLC, a Sterling, Va.-based producer of flight training and simulation products and services, acquired in December 2003. The company employed about 650.

•  Teldix GmbH, a German producer of avionics computers, head-up displays, multifunction displays and helmet displays. It was acquired in March 2006 for $94 million. It employed more than 400.

•  IP Unwired, a Canada-based supplier of wireless networking products, including the High Date Rate HF Modem technology already used in Rockwell Collins's Q9600 and Q9604 products. It was acquired in September 2006 for an undisclosed price. About 30 employees joined Rockwell Collins.

•  Anzus Inc., a Poway, Calif.-based provider of data exchange, forwarding, display and situational awareness software applications for the military, acquired in September 2006 for an undisclosed cash amount. The company had about $12 million in annual revenues and 50 employees.

•  DataPath Inc., a Duluth, Ga.-based supplier of satellite-based network communications solutions, acquired in 2009 for about $130 million in cash. The company had some 600 employees.

•  SEOS Displays Ltd., a West Sussex, England-based producer of display screens for flight simulation equipment, acquired in October 2008 for an undisclosed sum. SEOS had about 150 employees.

•  Air Routing International, a provider of flight-planning services for business aviation, from AR Group of Houston in January 2010, for an undisclosed sum.

•  Computing Technologies for Aviation Inc., a provider of flight operations management software based in Charlottesville, Va., in January 2011 for an undisclosed sum. The company had eight employees.

•  Blue Ridge Simulation, a Sterling, Va., provider of sensor simulation technology for training applications. It was acquired in December 2010.

•  Athena Technologies, a Warrenton, Va., provider of flight control systems for unmanned aerial vehicles and commercial aircraft, acquired in March 2008. The company had approximately 75 employees.