SDF: from local to global

There are plenty of potential benefits to an acquisition – from expanding your market to sourcing new technologies, from boosting profit to creating synergies to extending product lines. But despite all this, what many companies underestimate are the risks that stem from this strategy, risks relating to incompetence or inexperience in handling post-acquisition integration processes.

In fact, one of the key success factors of an acquisition involves tackling the changes that come once the deal is closed. But often companies fail to preempt issues linked to integration, and instead they find themselves reacting to problems as they come up instead of anticipating them.

Same Deutz-Fahr (SDF) is an Italian family firm specialized in agricultural machinery. Founded in 1942 in Treviglio (Bergamo), SDF has survived and thrived in a highly concentrated market by building its success on the ability to upgrade its products through continuous innovation. At the same time, breaking away from the competition, the Italian Group forged ahead with intense cross-border growth. After an initial internationalization phase in the ‘60s, in 1995 the company bought out Deutz-Fahr, a German company with public participation, creating the Same Deutz-Fahr Group. Then the following year, SDF opened a factory in India. In 2005 it was ĐuroĐakovic’s turn in Croazia; here the outcome was Same Deutz-Fahr Combines. Grégoire came next in France, in 2011. That same year saw a joint venture with Shandong Changlin Machinery in China, a company SDF later acquired. More deals were concluded in China in 2014, and the Same Deutz-Fahr Group.Ş. was founded in Turkey at this time as well.

To sum up, in the span of twenty years, SDF concluded six international acquisitions, investing a total of 271 million dollars. All these deals shared the same aims: to break into new markets and to expand the Group’s offering.

Over time, the company managed to grow distinctive competencies in post-acquisition integration, assimilating past experiences and gradually fine-tuning the underlying strategy. What becomes clear from SDF’s accumulated expertise is the need to think about both operational integration and human integration at the same time – before the deal takes place. Two specific aspects to consider are CAGE distances (cultural, administrative, geographic and economic), and an analysis of the final results.

After the problems that came up with the first deal in Germany, when the Group’s attitude was to take control the newcomer, management realized that the integration strategy had to be molded to fit the characteristics of the target. What’s more, this had to happen right after the deal was done, not decided on at the negotiating table beforehand.

Specifically, there were five stages in the integration process for all acquired companies:

1. Corporate Headquarter (CH) management was introduced to the target company management.
2. CH shared SDF’s core values and organizational culture with the subsidiary.
3. The hierarchical structure of the target company was set up and the integration process was set in motion.
4. CH shared its procedures with the target company.
5. A task force was created to come up with a plan for launching new products on the market.

The level of integration that SDF achieved with each acquisition varied, with the difference mainly due to how often the mechanisms outlined above were implemented. Subsequently other factors came into play as well: the level of autonomy the target company attained, the functional specialization, and lastly the frequency of communications between the departments at headquarters and their counterparts in the different subsidiaries.

The German deal put management at the Italian headquarters under enormous pressure, which it tried to relieve by investing in the operational side of integration instead of the human side. This provoked serious organizational tensions and led to disagreements between the management teams from the two companies. In the long run, there’s no doubt that the German deal has proven vital to the company’s success, today accounting for 63 percent of SDF’s revenues. But as we’ve already seen, the road was a torturous one. On one hand, SDF doubled its revenues and upped its competitive game; the company won recognition with the Deutz-Fahr brand and rounded out its product portfolio. But on the other, SDF privatized the German company, closing the factory in Cologne which meant firing 600 employees; SDF also underestimated the divergences in products and technologies, and wasn’t able to deal with these differences effectively. The cultural distance between SDF and Deutz-Fahr was vast, and the managerial culture was not readily compatible, creating further obstacles to integration.

Yet the bumps in the road to integration that SDF encountered along the way actually prompted management to rethink later post-acquisition strategies, specifically to find better ways of handling integration. In fact, after Germany the performance of each target company never dropped below pre-acquisition levels, and actually peaked with the second acquisition (Croatia), dropping again after the third (France) (because management dropped the ball), with another upturn after that.

According to the 2020 Strategic Plan, the company’s goal is to maintain the performance levels and the competitive advantages over the competition that the cross-border acquisition strategy has helped build. Specifically, SDF’s growth drivers will be:

• Control of technological know-how
• Centres of excellence all over the world
• Continual investments in research and development
• Innovative production plants
• Greater integration among counties
• Consolidation of the distribution network
• Completion of the product range
• Leadership in specialized product segments
• Focus on smart farming

• The post-acquisition integration strategy has to be based on in-depth study of both the characteristics of the target company and its home country.

• Human integration between the acquiring company and the acquired company is just as essential as operational integration. The mechanisms for the first minimize the problems that come up from CAGE distance, and play a key role in unlocking synergies between the two companies, especially at the outset of the integration process. The second, operational integration, seems to impact the consolidation stage of the process, when people from the two companies manage to get over the barriers and uncertainties that hamstring cooperation.

• Assimilating the experiences from prior acquisitions is a must; lessons learned need to be handed down. Factors that tacitly foster this process are stable top management, and close attention to costs and, more generally speaking, to resources.

• For a smoother acquisition, there’s no doubt of the advantages of working on products and technologies ahead of time, to ensure that the target company adopts a level of controlled autonomy.

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