What’s really happening in the mergers and acquisitions market?[QQ] The news is conflicting – the lull in European M&As and overall market pessimism is at odds with rumours that two of the Big Five are more than close friends, and private equity investors are keen to play.
While a return to the frenzy of recent years is unlikely, converging markets, shrinking audiences and hungry stakeholders means companies are revisiting potential partners and preparing for the M&A bandwagon in earnest.
The announcement that Hewlett Packard is to merge with Compaq is groundbreaking news as this will be the largest merge in the history of the IT sector.
Will HP learn anything from Compaq’s merger with Digital Equipment three and a half years ago? While HP will now be able to rival IBM for market share, what does this mean for the employees? Compaq’s Digital Equipment merger was thwarted with a number of issues, mainly that of two conflicting cultures never congealing.
Through the rose-tinted spectacles of any suitor their deal looks like the one to provide growth and synergy, gain access to new markets and solutions and – above all – create major efficiencies through the sharing of skills, technologies – and costs. The reality of course is different.
Two-thirds of all M&As fail to achieve their desired objectives.
So what goes wrong? Most of the reasons for failure are associated with culture and behaviour – unsurprisingly, since it’s people, not processes, that really make the difference between success and failure.
Stress occurs as employees contemplate whether they’ll be left with a job, struggle to cope with the influx of new people and fret about who was the winner in the deal. Cost cutting tends to result from job losses, rather than genuine efficiencies, which can impact negatively on customer service.
And the resulting corporate anorexia can leave the organisation vulnerable and unable to exploit opportunities. Even shareholders aren’t guaranteed a smooth ride, with sliding share prices as the City remains unimpressed and dissatisfied.
Increasing the odds for success depends on planning. And if you view any merger as a marriage, then the two key phases that need to be effectively managed are the pre-nuptials and the return from honeymoon.
In most M&As, time and energy is dedicated to financial and legal due diligence, but little or no attention is paid to the cultural issues, yet so many of the problems stem from this area.
One of the most important factors in the run up to the merger is establishing whether the senior players will be able to work together. It’s vital that, before Newco goes live, the senior leadership team is in place working effectively.
It’s vital to include cultural due diligence. This needs to be done from a neutral and positive perspective. Don’t assume one culture will give itself over to the other. Look for areas of synergy and ways the collective can be better than the individual. Look for potential flashpoints. To recognise and plan for these is healthier than a head in the sand approach – which is suffocating and potentially fatal.
Appoint a joint team to work through the cultural issues. Maybe even conduct a survey which is designed to bring out the different aspects which make up organisational culture:
Core values and assumptions: lie at the heart of a culture, are rarely questioned, and may not be recognised by those who embrace them.
Beliefs: things important to individuals.
Behaviours: what happens day-to-day – what people do rather than what they say.
Symbols: tangible and environmental clues to such as use of space, materials, uniforms etc.
Culture mapping exercises such as this are valuable. A successful exercise brings all beliefs to the surface and should start to reveal core values and assumptions.
Once the initial euphoria has died down it’s vital to manage the change actively. In the past, leadership teams have focused much of their efforts on the tangibles – systems, processes and structures. Of course, these are important. But they’re not the only important factors. Teambuilding and vision are also paramount.
Without being overly hierarchical, anyone in a management position is critically important. Who’s in and who’s out – and the way they are selected – send messages to the rest of the organisation. The recruitment process has to be seen as objective and meritocratic.
Once in place, it’s vital that all the team is singing from the same hymn sheet. What better way to ensure this than getting them to devise and collectively own the vision.
This should be future orientated, it should embrace the potential synergies and be clear about how they’ll be achieved. It should outline the sort of culture Newco will aspire to create. Once created, the vision should be compellingly communicated to the rest of the workforce.
It’s important to find creative ways to keep the message going, even once life seems more settled, and to adapt and update the messages as the new culture emerges.
– Jane Clarke is director of business psychology practice Nicholson McBride.
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