- November 11, 2019
- Posted by: Ramkumar
- Category: Mergers And Acquisitions
Culture is critical in M&A Integration
M&A integration requires a lot of efforts, time and capital. Multiple teams are involved to execute a M&A transaction. Inspite of huge efforts, most of the deals fail to realize the anticipated outcomes. Areas where most of the acquirers tumble is with respect to Culture. Acquirers need to avoid cultural flashpoints in the deal. Very often the target company would be following it’s own traditions which are emotionally and historically significant. When these traditions are replaced by the acquirer during the integration without proper thinking then it can result in a cultural flashpoint. These flashpoints can create dispropotionate level of risk. At the same time, these changes hardly bring any significant synergies. These flashpoints are not discovered till it is already too late.
Flashpoints are often caused by:
- Decision making approach/styles differences between acquirer and target.
- Differences in organizational structure like formality, access and bureaucracy
- Differences in working styles and habits between the target and acquirer
Managing culture successfully during M&A integration is about achieving two essential business objectives. The first is to minimize and avoid setting off cultural flashpoints. The second is to drive superior business results by defining and building cultural attributes. These attributes create high performance.
Many acquirers unknowingly set off cultural flashpoints and self inflict too much collateral damage. They spend precious time, energy and persuasion to mitigate these issues and focus on getting back to track. The disruption happens at a time when the acquirer can least afford it to happen. The executives teams, deal teams and integration teams need to be prepared to deal with the flashpoints. These flashpoints often are discovered too late. When it gets discovered, the flashpoint becomes magnified. Territorial battles get drawn and cultural clash adds more to the problem. Flashpoints occur in these potential possible areas:
- The first potential flashpoint is when Branding, logos and acquired company names are eliminated. These are the identities for the customers and employees. Most of the acquired company brands are very famous. When these brands are removed or eliminated by the acquirer, then it can annoy the customers and employees. The target company’s employees have huge amount of regard and proudness to work for their brands. When this brand is removed, they can feel demoralized. Their motivation to work can drastically reduce.
- Another flashpoint can happen when target company’s employment perks and work life benefits are eliminated. Many target companies are startups and have a very good work culture. They offer their employees flexible work schedules and attractive perks. Some of these perks can include Pizza lunches, happy hours, flexible work schedules, disparate types of tuition reimbursements and movie nights. These attractive perks are removed by the acquirer in the name of aligning the employees on acquirer’s employee benefits programs. This can cause the target company’s employees to leave and look for other options.
- The final potential flash point is when the buyer decides to rationalize the products and services of the target company. This decision can annoy the customers. The target company has built a deep customer relationships and high loyalty with its customer base. Hence when the acquirer decides to change it in the name of rationalization, it can result in customer attrition. Many times the acquirer replaces the target company’s sales team with acquirer sales professionals. The target sales employee has built good customer relationships. There is every possibility that he might take the customer with him in future.
The above three flashpoints can results in exits of key employees and customers. When this happens, then it can derail the acquirer’s integration efforts. This can result in acquirers not able to meet their synergies targets.
The message of cultural flashpoints to acquirers is not that they should not do any changes. The message is that they need to be careful when making changes. They need to realize the impact of these changes. After that they need to plan and implement flawlessly using right change management skills.
The acquirer needs to look for flashpoints throughout due diligence and M&A integration. They need to make smart integration decisions based on how customers and employee would respond to their changes.