The Meaning of a Merger
Print Issue: July 2017
For years, the idea of a merger between Universal Services of America and AlliedBarton Security Services made all the financial sense in the world. The numbers seemed clear: if the two firms joined forces, they would create the largest security company in North America, one that could offer tremendous resources and one-stop shopping for many in need of contract security services. And the two companies had complementary strengths—for example, Universal’s integrated security offerings and AlliedBarton’s security officers, when added together, further strengthened the appeal of a merger.
Although the industrial logic was undeniable, making the merger a reality proved to be a daunting task. Start-and-stop discussions had been ongoing for several years, and at different times, each firm courted the other for a possible acquisition, but neither organization was ready to seal the deal. The reasons why were not always entirely clear.
In any circumstance, a number of factors may make a deal of this magnitude difficult to accomplish. Because a merger of this type usually starts right at the top and involves the leadership of both companies, there’s always a risk of a power struggle. This can present a hurdle to change management—both leadership teams in a merger fighting for supremacy when deciding key issues like the new company name, leadership titles, or where the company should be headquartered.
Furthermore, merging two separate corporate cultures can be quite thorny, especially when the two companies were former competitors for many years, and both are deeply invested in being the industry leader.
Universal and Allied Barton had frequently talked about a union over the years, with no agreement coming to fruition. But then, a new window of opportunity appeared, changing the landscape and making a merger possible.
A WINDOW OPENS
In 2015, the Blackstone Group, the private equity firm that owned AlliedBarton, announced it was selling the company to the French investment firm Wendel SE. Universal Services of America had a good relationship with Wendel, so the idea of a merger of Universal with AlliedBarton under the auspices of Wendel seemed like one that would have strong private equity support. Indeed, Warburg Pincus and Partners Group, Universal’s equity partners, both indicated that they would back a merger.
And this new development took place in a broader business environment that continued to ripen for a possible merger. As profit margins in the industry remained tight, the economic efficiencies that could can be gained from the horizontal integration of two companies with complementary strengths were becoming more and more compelling.
Of course, there was still the “power struggle” issue to deal with between the two competing leadership teams. Sometimes, this struggle can be the most troublesome at the top; a merger between two large companies with tenured CEOs can turn into a clash of egos that cannot be tamed.
AlliedBarton and Universal avoided this conflict. In the case of our companies, the two CEOs (myself and Bill Whitmore of AlliedBarton) had a relationship that seemed to get stronger as time passed. I like to call it a “fierce and friendly” relationship—we were fierce competitors in the marketplace, but outside the arena, we always got along well. If any two leaders of rival companies had a chance to come together and make it work, we did. Moreover, Bill had made it clear that he was ready to move on from his CEO position to become Allied Universal’s board chairman, so we would not be competing for that role at the new company.
Given these conditions, a merger began to make even more sense. After nearly two years of serious discussion, both parties decided to move forward. Universal Services of America and AlliedBarton Security Services announced the merger to the public on May 3, 2016. By August 1, the merger was finalized between the two, forming Allied Universal, which is now a $5.1 billion company with more than 150,000 employees.
There was no shortage of challenges in getting to that endpoint. I believe our merger could serve as a case study in change management, because we faced a host of integration issues from cultural fit to staffing to operational procedures and processes. What follows are some of the key takeaways from the integration exercise that generated both lessons learned and best practice guidance.
COMPETITORS TO COMRADES
We started out with the help of trusted consultants. The Boston Consulting Group (BCG) handled the organizational process, and West Monroe Partners focused on the IT integration. Since BCG had worked with Universal during our acquisitions of Guardsmark and ABM Security, they knew us and our business and were able to quickly ramp up to help develop our integration plan.
Our timetable was ambitious given the scope of the project. In March and April, we conducted a thorough evaluation of each functional area in both companies. That gave us a good idea of where each organization’s strengths and weaknesses were, in terms of reaching our business goals like creating value, customer service, and the use of technology within our service offerings.
Then came an even more intense period. After the merger announcement in May, a few hundred executives from both companies—who had formerly led rival leadership teams—met in Dallas for a weeklong process of hashing out key components of the new company. Issues ranged from its new name to its core values to its areas of emphasis, department by department and function by function. For instance, in one case, we had to choose to use one accounting procedure over another. And there were times when we selected a single vendor for a service that had been previously handled by two different outfits.
Once these parameters were established, we went through several days of one-on-one interviews to form the leadership teams of the new company. At the start, we knew that this would be a challenging time for many. Given what was at stake, we tried to make the process as open and transparent as possible. We discussed the particulars of the process, the timetable, and the severance arrangements for people who would not be transitioning to the new organization.
In May, June, and July, we took our show on the road to visit key locations. We replicated the process we had just completed in Dallas for nonexecutive-level employees—roughly 150,000—who populated about 250 branch offices, many of which were being consolidated. We visited all regional offices and, as we did in Dallas, shared with employees our aspirations for the new company in terms of desired culture, core values, and our plans for getting there.
This three-month project was one of the most challenging components of the merger. Since many positions required staffing around the country (including regional leaders, HR, and sales associates), a tremendous amount of front-end work was needed.
Making these difficult hiring decisions was the most intense aspect of the entire merger. The initial presentations of the future goals, values, culture, and objectives of the new company were well-received and highly motivating. But then, you need to have “the conversation” about the reality that not everyone would be transitioning to the new company. During these times, it became clear how significantly a merger could affect the lives of employees.
It was also abundantly clear how unnerving the process can be–in addition to fulfilling current job responsibilities, employees basically have to “reinterview” for their jobs, with no guarantee that they will have one by the time the merger is finished. Again, given what was at stake, it was imperative for us to be as upfront, honest, and transparent as possible.
THE INTEGRATION PROCESS
Although the staffing consolidation may be the most intense facet of a merger, it is not the only challenging aspect. Merging the culture and processes of two companies was a complicated project that had its fair share of bumpy passages and difficulties.
Each company is unique. Companies may have similar values and corporate perspectives, as did AlliedBarton and Universal, but there will always be differences in processes and operations. This includes differences in management styles, resource allocations, engagement strategies, and procedural protocols.
To complete this part of the merger, we literally outlined each function of the two companies’ operations, and compared the similarities and differences. From there, we determined the best way to design each function for the new company. In some cases, we chose one company’s process over the other’s; in other instances, we took attributes from both to create a new one. In a few situations, we decided that a newly created process would be best. For example, human resources designed new employee recognition and evaluation programs.
I don’t want to sugarcoat this part of the merger–these were some of the more difficult discussions we had. Given that leaders from both companies were hashing out these processes, it was natural for them to be wedded to, and advocate for, their own company’s methods for doing business. But allowing this to occur would have defeated the purpose of the exercise, because we wanted to design the new company functions on merit.
So, we challenged our executives to overcome their own biases and aspire to objectivity in coming up with the best methods for operations. This meant scores of candid, searching discussions, with multiple stakeholders present at every meeting to ensure all points of view were taken into account.
In the end, we decided to have two corporate headquarters: one in Conshohocken, Pennsylvania, where finance, payroll, and billing would be housed, and the other in Santa Ana, California, where human resources and sales/marketing would be centralized. Additionally, we carved out seven regional territories that would be serviced by Centers of Excellence to provide operational and field-level support.
Six months after the May announcement, we were able to complete the integration of security services for our seven U.S. regions (Northeast, Mid-Atlantic, Southeast, Midwest, Central, Northwest, and Southwest) and Canada.
Given that these regions contained more than 200 branch offices, this meant working days that stretched from early morning to late at night, running at a rapid clip to keep the process moving forward, and covering all bases. I scheduled meetings and calls with each region to discuss areas that required more focus and opportunities that would showcase our new strengths. I worked with legal and HR teams to refine and enhance business operations and employee retention, and spent time in the field with clients and employees to share the vision and mission of the new brand. We traveled around the country rolling out our culture initiatives. These initiatives included challenging employees to focus on the positives of the merger, to anticipate changes that would benefit the business and our clients, and to embrace new policies and programs.
But a merger as large as this one comes with its own business continuity issues. We knew that sustaining normal operations and retaining talent would be a challenge during such a large-scale integration. We spent just as much time, preparation, and focus on business as usual during the transition as we did before the merger occurred.
Still, we recognized that clients might be nervous that the merger process could mean a downgrade in our customer service. Countering that line of thought was a priority for us. So, during the first week of our announcement, we reached out to all customers, and explained to them what would be happening. From a customer perspective, we wanted everything to be clear, so there would be no question marks in their minds about our ability to deliver our usual service. We were also direct in communicating the positives the merger would mean for them.
In essence, we guaranteed our clients that their service would not be interrupted. To ensure this, we held weekly management calls with our leadership team, and hashed out any client issues and concerns. We made sure that any internal problems did not hinder our external service.
Internally, mergers can be a disquieting experience for some, even for workers who anticipate staying with the company. At times, employees would want to discuss what the merger process might mean for them, or even talk about a job opportunity they had elsewhere.
The latter situation sometimes led to a dilemma for us. Employees are vital to our success and retention is also critical, but we did not want to hold anyone back from promising career opportunities. We always made ourselves available and would walk through these issues with people, while being as honest as possible.
Overall, it is a simple economic reality that mergers and acquisitions are the norm in many business sectors, despite all their difficult passages, because they enable companies to grow exponentially, and expand in areas and markets that previously may have been out of reach. Perhaps the final lesson learned is that integrating organizations and aligning cultures always requires an all-in collaborative approach. Not only the leadership team, but employees, customers and constituents—all those whose depend on the company—must be in it together to achieve success.
Steve Jones, former CEO of Universal Services of America, is the CEO of Allied Universal. Mark Tarallo is senior editor of Security Management.