Both 2007 and 2008 played host to terrific activity in theagent-broker merger and acquisition arena. It remains to be seen,however, whether 2009 will follow suit. Given the troublinguncertainty of the insurance market and the domestic economy,prudence is in order this year for those firms considering andundertaking acquisitions.

A common downfall among acquirers is to become smitten with whatI call "deal fever." When this happens, a critical fact may be lostin all the M&A hype--namely that an acquisition's ultimatequality stems from two conditions: the quality of the target, andthe quality of integration following the closing of atransaction.

These issues may seem incredibly basic, but unless they'reaccorded sufficient attention by acquirers, the results of anexpensive and time-consuming acquisition can be disastrous.

When discussing the issue of quality of the target, the measureshould be by the target's ability to deliver projected financialresults and earnings on a go-forward basis that are in line withthe purchase price.

Prudent acquirers will recall that many business-school studiesindicate that from 50-to-75 percent of acquisitions in thepublic-company sector do not deliver their intended results. Thus,wise acquirers know that any financial modeling and projectionsthey use must be realistic.

To that end, the purchase price or value of the target shouldnever be based on a multiple of top-line revenues or commissions.Such multiples can be used as check-point metrics, but should neverfunction as valuation equations. Instead, the purchase price orvalue should always be based on the target's actual deliverableearnings or cash flow.

Deal terms and structure cannot magically convert a poor targetinto a good acquisition. An apparently creative pricing andearn-out structure rarely will compensate for the intrinsicweaknesses of the target.

Lost in an overly optimistic belief that terms and structurecreativity will overcome weakness is the additional intellectualcapital and staff cost that is required to integrate the weaktarget into the acquirer. Junk is junk, and some deals should notbe completed at any price.

Two other common pitfalls in M&A are overly optimisticexpense reductions and illusory economies of scale. Such savingsare finite and usually fleeting. Even when an acquirer has excessinfrastructure and excess staff capacity, these assets are soonabsorbed by normal needs and growth, thereby negating any suchbenefit.

Even if this is not the case, a seller should rarely if ever beaccorded the financial benefit of the acquirer's economy ofscale.

Components that should additionally be considered are thetarget's culture and fit with the acquirer. Although hard tomeasure, these components are critical to the quality of anacquisition. An acquirer must unequivocally trust the target andfeel confident that its management, staff, business operations andbook of business will align with those of its own.

This is not to suggest that a nirvana-like aura should surroundthe deal. It is to say, however, that a lack of trust and alignmentof interest should generally be deal-breakers, among other issues.Due diligence and purchase agreement language will never overcome alack of suitable culture or trust in the target.

Planning for the integration of a target into an acquirer shouldbe part and parcel to the number-crunching, analytics, deal terms,structure and negotiations. An acquirer should be mindful from thetime of initial contact with a prospective target of the challengesthat will be faced during the integration process. The old adagethat "the devil is in the details" could not be more apropos thanin acquisition integration.

The success of the integration process is predicated on twocritical and inextricably linked pieces: the planning structureprior to the closing, and its implementation after the closing.During both, communication among and between the acquiring firm andthe target is absolutely key.

The planning process should embrace all operational and relatedareas, from human resources, training and development, systems andprocedures, to information technology.

A member of the acquisition team should be tasked withresponsibility for the integration plan, and the plan should be inits formative stage as terms are agreed to between the parties. Theactual plan should be segmented by topical area and include:

o A list of tasks and subtasks

o The point person at the acquirer

o The point person at target

o The target completion date

o The actual completion date

As soon as possible after deal terms are agreed to, theintegration czar should roll out the plan. A person with similarbut subordinated responsibility for the plan should also bedesignated at the target company. No detail is too small to beoverlooked in achieving adherence to all completion dates.

Communication with the target's staff is critical to manageexpectations and minimize as much angst as possible with thetransaction. There will always be some shock and uncertainty, andsome individuals will carry a level of fear past closing,regardless of the quality of communication.

Even so, it is important to be absolutely forthright at alllevels. Any negative ramifications affecting the organization or tocertain staff members should be communicated directly and withoutequivocation.

Experienced and wise acquirers embrace the concept that, onbalance, the best deal may be the one that is never made.

Management guru Peter Drucker opined many years ago thatdeal-making beats working. "Deal-making is exciting and fun, andworking is grubby," he said. "Deal-making is sexy. That's why youhave deals that don't make sense."

Properly executed, acquisitions can be an important part of anagency's long-term growth strategy. But any such transaction donewithout proper attention to the quality of the target, and to thequality of integration after the deal is closed, could causeirreparable damage to the acquiring firm.