‘Success in M&A? It’s all about the people!'

Blog 4 - Mergers & Acquisitions – "Culture eats strategy for breakfast"

This well-known quote from Peter Drucker hits the nail on the head in the M&A context. On paper, merging two organisations may seem so logical. However.....

Look at a small family business being acquired by a large corporate merging in a friendly way. You are used to knowing everyone. You can just walk into the office of the bos/owner. Totally informal atmosphere. After the acquisition you are suddenly being confronted with all kinds of rules. You have to report all sorts of details and you have to justify yourself for the decisions that you made. This is not easy, to put it mildly. Many employees no longer recognize the workplace. The previous owner and some of the key employees might soon leave the company in such case.

I would like to share a few examples to show how important cultural awareness in M&A transactions is.

Way of working is part of the culture

A large multinational company is manufacturing technical products, an A brand with premium products. It is a service oriented company as well. Technical talents are scarce and the company has already multiple vacancies in the service department. Acquiring a specialised service company makes a lot of sense. They already have been working together with a small family owned company and the owner is reaching retirement age. Agreement is reached on the acquisition very quickly. Everyone is very excited about it, both the seller and the buyer. Integration starts. Service engineers from both companies are excited to learn from each other. There is also mutual respect.

So why is this difficult to integrate? The service engineers from the multinational company are used to working from 8.00 – 16.00 hours regularly, they know how their day is planned before they start the day and every day the scope of work is clear as they know the products they are servicing. The service engineers from the small company are used to irregular hours, every day is different, they do not know in the morning what will be happening during the day and the work is so diverse that they really need to be widely skilled, for multiple brands and shapes and forms. So they were not very keen to take each other’s shifts….

Good intentions do not always work out

Another large multinational company acquires its main competitor, both operating on a global scale and both are in their own way market leaders. Since they are operating in a global market with lots of strong local players, the competition authorities are not in their way. One company (A) is part of a larger multinational group and the other (B) is still owned by their founding family owners.

Same here: everyone excited about the merger, lots of mutual respect for each other. A thorough integration plan was prepared and the integration principles were clearly defined: a merger of equals,? in each management team equal representation of both companies, combining the best of both worlds. In the execution of these principles, it turned out that company B did not have sufficient managers/leaders to fill all the local management team and to meet the profiles for these roles. So the management teams post merger were not as mixed as was planned.

In addition, company B was very entrepreneurial with very short lines to make decisions. As company A was part of a group, it was a much more formalised organisation with more strict policies and procedures for decision making. So even if the managers of company B were qualified to become part of the management team, some of them became dissatisfied with the situation. Unfortunately, a lot of them left or had to leave. A lot of experience left the combined company….. The competition was keen to welcome those managers with open arms.

Has it been worthwhile?

Reflecting on these examples, you may question if these acquisitions on hindsight were the right thing to do. This very much depends on what the expectations are and how you plan to integrate. The first example was probably worthwhile, as even on a stand alone basis it could still make its return and both teams of service engineers can remain separate.

In the second example, it is less evident. A full integration is always more complex and there is more at stake. And competition can even benefit from a situation like this. It clearly shows in these examples how important the impact of culture is for the success of an acquisition.

Making culture tangible is possible

The good news is that there are wonderful tools to measure culture and uncover the exciting differences. Barrett's Values Assessment is one such widely used tool to quickly get to the core of a company culture through values. A picture of organisation A next to organisation B indicates where the synergy lies, and where the possible areas of tension lie. Along with the data on the desired culture, fantastic ingredients for a possible red flag or a solid integration plan.

Another fantastic tool is 2DAYSMOOD , originally developed to achieve better results with happy and engaged employees, is also capable to measure cultural values, compare them and measure the impact of interventions taken.

We are happy to explore this further with you and share our thoughts.