Out of 2,100 corporate respondents in Deloitte’s 2014 mergers and acquisitions (M&A) report, about 54% of companies close one to five M&A deals a year. Companies merge for many reasons, but the main goals are to acquire new products or markets and increase profitability or savings through strategic acquisition of technology and talent.
But despite the high number of deals, the road toward successful M&As is risky for many corporations and doesn't always include a profit. Like any transaction, there are winners and losers at all levels. Common problems include:
• One employee’s tenure and skills outweigh another.
• One corporate culture trumps another.
• Managers battle it out for power and resources.
Challenges like this happen while executives are busy making decisions that affect two organizations that previously might have had nothing to do with each other.
Done haphazardly, an attractive M&A can ruin one or both companies. However, with a clear structure, plan in place for integration, and a leadership team communicating that plan clearly, fear of the unknown is eradicated.
Start With Cultural Integration
While there are many moving parts to consider when heading an M&A (including business systems, operational models, aligning the vision and mission, company metrics, transparency), the most important thing of all is cultural integration. Employees know that M&As often lead to layoffs, which can create "survivor outcasts," where instead of cooperating, employees from both sides act to protect their own interests and don't look out for one another. Second, without addressing the culture issues first, it’s challenging to implement any strategy. In other words, culture eats strategy for lunch. In the same Deloitte report, 61% of respondents ranked "effective integration" as their "first or second most important concern."
To merge corporate cultures, define the target culture first, including shared values, reporting processes, and behaviors that dictate how employees will do their jobs after the merge.
Skip Maner, General Partner at NewSpring Capital Holdings, a company that buys and invests in small businesses, echoes this belief: “Focusing on pure mathematics guarantees failure. At the end of the day, it’s the people that make M&As successful," he explains. "Strong will, clear direction, good leadership, and reward systems that show employees they can retain their job and continue growing."
Understand Each Other's Culture
Take time to get to know each other’s company culture. Without this sensitivity, companies can lose their best employees.
Dave Rosenberg, for example, was president of Priority Moving, Inc. (PMI) before the company was acquired by JRL Transportation, Inc. JRL’s owners made immediate changes that affected their original operations, enforcing a bottom-up management that shook up PMI's culture, which valued independence and employee initiative. “One year after the acquisition, only two of the original 10 PMI employees remained. Most of our big customers left," says Rosenberg.
Implement Team Building
After giving teams a chance to get acquainted with one another, leaders can further ease transitions through strategic team building that provides practical ways to figure out how to work together. For instance:
1. Volunteer Together
Find organizations that facilitate philanthropic team building activities to combine developing solid teamwork with giving back to local charities.
Volunteering and giving together helps employees view employers in a positive light, exactly what you need during an M&A. I recently conducted a team building for an acquiring company and their new employees. We broke the ice with an interactive activity that encouraged cooperation from both executive teams to accomplish the activity’s objective. After the ice breaker, both teams saw the tangible benefits of their effort, after their work was awarded to a local charity. The employees associated this "feel good" effect with their employer, and now, their new co-workers.
Also consider a study from UnitedHealth Group, which found that 87% of volunteers in 2013-2014 said volunteering was a great way to develop teamwork and people skills. In the same study, 81% of respondents agreed that corporate sponsored volunteering cemented colleague relationships.
2. Assign Culture Ambassadors
Representatives from both companies visit counterpart offices with gifts and questions from their colleagues. After that, both ambassadors return with knowledge about their future colleagues and work culture.
A gift to show the other side’s appreciation also helps establish rapport. This helps opposing employees realize that the other team isn’t "that bad," while immersing themselves in the other company’s business processes and culture.
3. Paint Walls
Allow merged employees to redecorate the new office as a way to make them feel valued at the acquiring company. Brandon Atkinson, Chief People Officer at AppNexus, says, “One company we acquired felt neglected because all our offices around the world had orange painted walls — the company color. To the newcomers, our failure to paint their walls right away implied a lack of investment in them.”
Can You Afford To Fail After A Merger?
For small and mid-market companies, failure to integrate properly has costly effects on talent pools and bottom lines. Big corporations also experience this, but they have enough resources to put out fires.
Conducting teambuilding activities assists both parties with the integration process. The activities might take time out of busy schedules, but neglecting this aspect of an M&A costs more than doing it in the first place.
