M&A Transformers Episode 02

When two businesses of similar maturity merge, a one-off investment that roughly matches the annual synergies target is usually what’s needed to realise that target. In this instance leadership decided to invest more to create central functions from scratch and actively support the eCG brands after being cut loose from eBay. In Alex’s words, “It didn’t make sense for us to continue to operate the same way, so we decided to change the operating model and build central services at the same time as completing the deal.” This made commercial sense but was still hugely ambitious and would not have worked if Adevinta hadn’t already invested time to form a clear vision for the new organisation.

It’s important for acquirers to own their integration and transformation journey and not expect advisers to take over. But ownership also needs to permeate the organisation and run deeper than senior executive level, because it’s usually functional leads and process owners who understand the operational nuances. If you get them actively involved, they can help embed ownership right through to the practical implementation. To make sure this happened, Adevinta had several workstreams, each with an executive sponsor, in-house lead and team, and Deloitte supporting them.

At board level the appointment of a dedicated Integration (and later Transformation) Committee, ensured oversight and support. Their challenge and backing empowered Alex to steer the programme objectively.

Despite being similar in size, the two organisations were very different in terms of maturity and working culture. eCG reflected the values and centralised practices of its eBay mothership. Adevinta’s businesses had autonomous operations and cultures, but all shared a strongly consultative nature which lay at the company’s heart.

For Nicki Dexter, Adevinta’s Chief People & Communications Officer, getting the culture right was her main goal. Nicki shared how “We spent a lot of time in focus groups and interviews to understand what was important to the two organisations and what was holding them back. We then retained all the things they loved and scaled them when we put the organisation together.”

M&A triggers senior-level attrition and this deal was no exception. Some eCG leaders left post-announcement, meaning the business needed time to stabilise. In the wider business the rationalisation of operations required careful consideration of local labour laws. These aren’t easy decisions, and often can’t be avoided but there’s still a choice about how they’re handled. Ongoing and clear communication was vital so that everyone understood the constraints on the business and why certain decisions were made. As Nicki puts it, “Overcommunicate. You always think you’re doing a good job of communicating, but you can never really do enough.”

As a young, relatively decentralised organisation, Adevinta had to start to transform while transacting in order to be in a position to integrate eCG (which had relied on support from eBay’s central functions). TSAs with eBay bought some valuable time and by deciding to leapfrog to new, centralised systems rather than upgrade and integrate the various old ones, Adevinta was able to maintain pace and build sustainable efficiencies.

Successful transformations require a clear vision of how you want to be working in three to five years’ time – we call that the ‘North Star’ or ‘Lighthouse’ view. The process pushes a business to be clear and honest about its strengths and where the combination of capabilities from the merger will drive improvements. Adevinta considered the best balance between local and global – to get the cost efficiencies of central functions but also to keep the collaborative ethos and not take a fully top-down approach. Adevinta chose to take an incremental, consultative approach for some transformation activities, which helped keep key leaders on board.

It’s not easy trying to make progress on several fronts in parallel and doing it all at once can stress a business. Adevinta was passionate about protecting the consumer experience so chose to keep areas such as customer services and CRM systems out of scope in the early stages. Again, there was a need to balance maintaining the culture with staying commercially credible, but their clear priorities for action meant they could reassure the market by demonstrating steady progress.

With neither the capability to plan and co-ordinate the integration nor the back-office capacity to put the plans into practice, Adevinta has drawn support from various places.

External advisers bring important expertise and resources during an integration. Adevinta was open to this support but, as a relatively lean business, wanted advisers who could actively partner with them and be invested in the journey as a part of their team. This partnering has brought a learning benefit that has helped Adevinta become much more self-reliant, with external help now only needed in certain areas. For example, post TSA exits, Adevinta has now embarked on a major Cloud journey for all their applications with help from Deloitte and Amazon Web Services.

With so few central resources, long-term arrangements for outsourcing some back-office activities (for example Payroll) have also taken the heavy lifting off Adevinta’s shoulders. “We’ve got this ecosystem of support now – not only for the integration, but also for Adevinta ‘in life’, which has been really good for us” says Alex.

With a deal of this size it’s right to expect complexity. It couldn’t be completed overnight. “Closing the deal was delayed by almost a year, which caused lots of challenges, but we were ready for them”, says Alex.

Being prepared to respond to scrutiny and challenge by competition authorities saves time in the long run. Adevinta had already considered how they might have to flex to keep regulators happy while staying true to their strategy, so when challenges arose, they were ready to resolve them quickly which included moves like selling Shpock and Gumtree in the UK.

It was important to Adevinta that eCG teams were involved in decision-making so they recognised that balancing a consultative approach with confidentiality rules would involve some delay.

One solution is a confidential ‘clean room’ environment, where selected senior management from both companies meet to agree some key decisions beforehand, so they’re ready for action on Day One. Another is to be ready for joint decision-making from Day One, so the acquirer needs to consider beforehand what decisions will need to be made, and their priorities: which can be made early, which need more deliberation, and so forth. Some of those decisions might be strategically sensitive, or are culturally important to consult widely so they need more time. Others could be straightforward ‘no regret’ actions – perhaps planning and staffing back-office operations – where those decisions can safely be made before Day One.

Adevinta kept focus on making steady progress and could shift speed according to the circumstances. For instance, they got a lot done quickly by outsourcing services such as application and desktop management and these were important early signals to the market of practical steps with sustainable benefit.

Even with a committed team, a programme like this can be a hard road to follow and remuneration can help sustain commitment through the rough and the smooth. Internally you might have bonus elements for key programme leaders and you can also consider incentivising advisers, which can work well for simple, well-defined assignments.

The acquisition has been a crucial step in Adevinta’s ‘Growing at Scale’ strategy and has moved the organisation up a league, beyond niche marketplaces, so they’ve now got the scale and efficiency to compete with the giants. A refreshed leadership team is now embarking on an organisational simplification programme to help exploit its scale and better align the business with its growth ambitions in key market verticals.

Adevinta is now more ‘acquisition or divestment ready’ than it has ever been. The organisation has learned what it takes to make acquisitions succeed and the new operating model will make future integrations or carve-outs much easier.

Cost rationalisation has delivered a large chunk of the deal synergies. Nicki confirms that value is also being created in other ways, in part down to brands sharing their knowhow with others in the group: “The business and commercial teams have been able to accelerate feature development and progress the business from a product perspective.”

Focus on the customer has been notable throughout. “I’m most proud of our teams,” says Nicki. “They have put the customer first at every juncture.” And going to the heart of Adevinta’s purpose, “Ultimately, we envisage a world where sustainable commerce can help shape a healthier world and society. This deal has enabled us to scale up our ambition to help people and things connect to a new purpose.”