M&A Integration: MOE (Merger of Equals)

The Merger of Equals, a concept I have never agreed with during my M&A career. Yet, we hear this so often in the media and executive messaging. I have experienced there are no companies created equal, hence this messaging has always been somewhat problematic for me. If you dimension a company by e.g., size, capabilities, market share, brand, products, executive talent, engineering talent, geographic reach, depth of penetration, etc., companies are not equal across all (or even some) dimensions.

The messaging gets out of hand with cautious boards and enthusiastic management teams continuing to message merger of equals (mostly to appease someone), usually only two factors i.e., size or headcount being of each company being in the ballpark range of the other leads to the conclusion (or delusion) of being equals who paid for it does matter while creating the perceptions of quality or inequality!

In a recent survey that my firm conducted, corporate development and M&A integration executives did mention specifically that executives messaging MOE (Merger of Equals) were in the top 3-4 reasons for sub-optimal M&A integration.

Having seen this a few times, here are thoughts and practices on how to handle the M&A integration during a MOE:

The direction of momentum: Right from the due diligence and integration planning stages be clear that integration messaging will be "forward-looking and constructive”, and the focus will be on how we move forward together and not on " why we are different and who will change", it will be about "how we create a joint culture together". Exceptions being the non-negotiables, like private companies merging with public companies, make sure the zero-tolerance zones are clear to everyone and that they are implemented. This is not an HR thing to be pushed under change management or brushed aside as soft fluff - punting this to Human Resources and thinking the problem will be solved can be value threatening, the businesses must live with this aspect for months and years to come. Hence addressing decision making must be business owned and HR facilitated- not the other way around.

 Decision making: Consensus slows decision making, creates a structure and process for making, communicating, and acting on decisions by ensuring executives are visibly involved. Make the tough, yet transparent decisions quickly especially where synergies are involved. Communicate jointly to employees, customers, suppliers, regulators, channel partners with a unified vision of the rationale behind decisions and what lies ahead.

Value driver focus: Executives and Integration Leaders must clarify that nothing will supersede or circumvent the transaction value drivers, these must be executed by navigating barriers and differences. Usually, differences in company operating models are made the excuses to resist change, on a specific client I was helping, the integration leaders applauded and rewarded the creativity of people to navigate cultural minefields and operational differences to execute transaction value drivers.

 Culture: Focusing a lot on culture change is not helpful, understand the culture, be respectful to each other’s but also leverage similarities to foster execution and differences to protect or navigate around. Culture can only be gradually shaped, not changed overnight - defining a shared vision for value creation is critical. Have "two in a box" leaders to enable future operating models, incentivize them to succeed while operating cohesively, and recognize small victories such as key milestones. For more details on culture during M&A integration, read my article at https://www.fticonsulting.com/insights/articles/bridging-cultural-divide

Channel Partners: While people focus on customers and employees a lot, they often ignore channel partners. They are the extended sales force of the company, and one cannot alienate them. Be upfront about channel conflicts and have a very transparent plan on addressing those. Also, when size is often the only dimension to measure equality, issues such as one company not relying on channels trivializes the other who does (common). This needs to be addressed at the due diligence itself, channel partners take the blame for note realizing revenue synergies - leading practice is to have one or two-channel partner workshops (early ) and listen to what they have to say after you communicate the combined co vision, both companies should be represented in equal strength when these occur and not send someone for checking the box.

Avoid the traps of resistance: Understand patterns of resistance and not fall into the traps of delays or fighting change. I have seen five distinct patterns of resistance i.e., unnecessary uniqueness, the culture of democracy, infinite appeals, justified delays, and technical flamethrowers - more on these another time. But plan for these patterns and develop foresight on mitigation plans without upsetting the apple cart. Transactions are very emotional and need to deal with reinforcing positive tones and lots of energy even if people resist. Especially important during a merger of equals is to quickly move out people slowing down the process through elevated patterns of change resistance while rewarding people who embrace speed and change.

The most successful integrations (well relatively) after messaging "merger of equals" had some of these characteristics:

 (1) Strong sense of who was strong in what area

(2) Clear understanding of non-negotiables, full transparency

(3) Strong "two in a box" leadership - incentivized for teaming, creative navigation of barriers, and hitting milestones

(4) Combined culture definition, as opposed to a culture integration

(5) Integration being themed around "forward-looking and constructive"

At the risk of repeating myself, there is no such thing as a merger of equals and no two companies are equal across all material dimensions. I would continue to advise executives and boards to refrain from open messaging around "merger of equals" but should also realize advisors like myself are only influencers and people have their views and reasons. If any of you fall victim to the MOE messaging, hope some of these tips could help.