Harnessing the Power of Culture in Mergers and Acquisitions
by Chris Cancialosi
There has certainly not been a shortage of merger and acquisition activity in the US over the last couple of years. Organizations continue to find growth strategies that keep them competitive in the rapidly evolving business landscape through M&A activity.
2015 was a banner year, coming in at an estimated $5 Trillion (with a t) in deal value emanating from activity. And this trend is showing no signs of stopping in 2016, with recent announcements about Alaska Airlines acquiring Virgin America, and Comcast buying Dreamworks Animation. Consolidation seems to be a viable strategy for many leaders in a variety of industries, as Jeff Golman’s article from January explains.
The decision to drive strategic growth through M&A can certainly be alluring. The numbers often drive a pretty hard argument. But as anyone who has experienced the reality of a transaction knows, the road to living up to financial expectations of a merger or acquisition can be fraught with any number of land mines. And one of the more overlooked derailing factors to consider is organizational culture.
I get quite a few calls from business leaders who are several months (or years) into an integration of an acquisition. In hindsight they realized that they failed to adequately understand the power of culture in the success, or failure, of a deal to achieve its intended targets. The overwhelming majority of these calls is after the deal is done, integration has failed to achieve results and those left behind are struggling to figure out how to turn things around.
These same leaders usually take a very different approach in the future by taking the time to use organizational culture much earlier in the process as one (of many) indicators of future success or failure.
Leveraging Culture During a Merger or Acquisition
Here are a few tips to help business leaders use culture as a tool to help set the stage for M&A success, regardless of where you are on the M&A timeline.
It’s never too early or too late to start. Although most executives realize that culture is at the root of their M&A troubles once they’re neck deep in integration, it doesn’t have to play out this way. Yes, data may be more difficult to come by earlier in the process, but analysis of public domain information can help add insight into the potential cultures of target companies before they even know they are being considered. This type of analysis can be messy and it’s certainly not the only piece of information to consider. But, the data can add a perspective to the discussion to help mitigate risk right out of the gate.
Your approach is dependent on the type of transaction. Is it a complete assimilation? Will the target company remain mostly independent? Or will there be a melding of the best of both to set the stage for the next chapter? The type of transaction can drastically change the approach and how culture can be a useful tool in setting you up for success down the road. Obviously, the more assimilation of the target, the more intensive the preparation to help ensure a successful integration.
Culture is one of many factors to consider. While this article focuses on how organizational culture can be used as a key component in helping to mitigate risk in all phases of the M&A process, this is not to suggest that it be the only factor to consider. Rather, organizational culture (an understanding of one’s own and of targets) should be one of many key data points to help shape conversations and strategy.
There can only be one. This statement goes as well for Highlander movies as it does for the CEOs that lead the merged organization. In all instances where I have witnessed multiple CEOs try to co-lead a company, it has resulted in significant challenges. At the end of the day, someone needs to be in charge. Having multiple CEOs creates confusion for stakeholders and hampers the ability to clearly articulate one culture and strategy in the organizational design moving forward.
Inclusion is critical. For a variety of reasons, inclusion flies in the face of the typical M&A process. Things are usually kept under wraps until the deal is signed, followed by a flurry of one-way communication to stakeholders. This can create massive confusion and increased anxiety as people try to look into their crystal balls to figure out what the change will mean for them. Creating space for people to come together to understand the facts and to process the information together frequently throughout the process can help keep people focused on the business during the process. Even if the deal is done, it’s never to late to start helping your stakeholders understand what’s happening and feel included.
Keep your eye on the ball(s). An M&A growth strategy is typically undertaken in order to increase value to customers. But once the deal is signed, that’s exactly who can get left behind as attention turns internal; toward integrating and aligning people. Success during integration relies on the ability of your organization to focus both internally and externally so that unintended consequences don’t begin to gum up the works.
Mergers and acquisitions are serious business. They are chock full of complexity and, no matter how much planning and preparation goes into them, the experience will never be completely free of unanticipated challenges. But, when millions and millions of dollars are on the line, why not use every tool available to help you mitigate risk and stack the deck in your favor?