Successful Combinations Consider Culture and Cooperative Industry Concerns
The cooperative landscape continues to change throughout the country as cooperatives and agribusiness organizations consolidate. Historically, consolidation has been prompted by distressed cooperatives or privately held businesses looking to join with a stronger company. Today’s environment is much different, as cooperatives with strong balance sheets consolidate for a variety of reasons, including:
- Better customer service
- Aging management
- Reduction of overhead
- Improvements in technology
As with any business combination, careful planning is required.
In speaking with leaders of cooperatives that have been through a business combination, I have found that the most common challenge is blending cultures. It is important during the planning phase that all cooperatives involved have an honest discussion about their individual cultures. These discussions might touch on:
- Vision or mission statements
- Best practices (and how they correlate to the vision and values of the cooperative)
- Employee’s attitudes about the vision and values
- General tone throughout the cooperative
Once you’ve explored the cultures involved, you can decide if a merger or acquisition makes sense. If it does, develop goals for the transaction. One of the goals of any transaction should be to increase your strengths and opportunities, while minimizing weaknesses and threats. The following goals are usually explored:
- Improved leadership
- Combining duplicate functions
- Better utilizing excess capacity in one or both organizations
- Achieving economies of scale
- Risk management
- Reducing the cost of capital
- Improved cash and inventory management
- Increased market power
The next step is to perform a feasibility study to help you decide whether a merger or acquisition is right for your organization. The study should consider the financial information for each organization as well as a projected balance sheet, statement of operations, and cash flow forecast for the combined operation. The projected financial information should highlight areas where revenues and gross margins will increase and where savings will occur. The study should also identify any environmental issues or liabilities that need to be addressed in order for the combination to be successful.
Unique cooperative issues
The unique characteristics of cooperatives require that several special considerations are addressed for any merger or acquisition to be successful.
The board and upper management are the two main components that will help shape and drive the culture and success of the combined cooperative. It is important to give careful consideration to how the board will look in its final stage. Typically, a transition plan requires that some director positions are eliminated as their terms expire so that the combined board is a workable number of directors and represents the entire membership base.
Equity retirement plan
When two or more cooperatives come together there are usually several equity plans. It is important to address equity early on in the discussions of a merger or acquisition in order to meet the expectations of all members. The combined entity’s equity plan ultimately has to coincide with the vision or mission of the cooperative.
Closing or sale of facilities
Generally speaking, when two cooperatives combine, there are facilities and locations that overlap trade territories. Closing locations can upset a cooperative’s culture and employee morale. Again, these discussions need to occur early on and be properly communicated to members and employees to assure them that their operations or their jobs will see minimal impact.
How we can help
The success of a business combination relies on proper planning, which includes communication with members and employees in both organizations. Although having compatible cultures is a key to the success of the newly formed entity, it is only the first step of many, deliberate successive steps, several of which are unique to companies operating in the cooperative industry. When strong cooperatives combine in a well-executed transaction, the result is a healthy, profitable, and more efficient organization.