Mergers and acquisitions (M&A) are becoming a favored path with leaders searching for ways to create new business models, enter into new industries/markets, or gain new business capabilities, products and services. In fact, 2017 was a record year in North America for these activities and 2018 is proving to be even hotter. And just before you conclude that this is a big company strategy, it’s actually the middle and small market businesses that are doing most of the deals.
”Nearly three quarters of American CEOs surveyed (72%) are considering merger, acquisition or divestiture activity within the next three years”. Tata Consulting Services and Chief Executive Survey
Maximizing the synergies
While creating business growth is the determining factor for entering into M&A discussions, the biggest financial consideration is maximizing the synergies between the two companies. And yet, most acquisitions fail to deliver the benefits originally identified. The reason is two-fold. Either the defined benefits were poorly assessed or the execution of the integration ended up costing more than expected.
In the Chief Executive Survey the top three execution challenges citied by CEO’s were culture (56%), people/talent (49%), and leadership/governance (42%).
The clash of two cultures
I remember when Rogers Communications acquired MacLean-Hunter. I was working in Ottawa and at the time Rogers was servicing one side of the city and MacLean-Hunter the other. We had two of everything: two senior leadership teams, two call centres, and two engineering departments. The opportunity for synergies and efficiencies was great.
Maclean-Hunter had a reputation as a disciplined, profitable and steeped in history organization. Employees felt proud to be part of this Canadian icon. In their minds, the upstart Rogers had forced its way into their world when it should have been the other way around. We faced the challenge of merging two very different cultures. Our differences manifested most clearly in our two different approaches to upgrading the telecommunications network.
The cost of ignoring culture
Maclean-Hunter was slow and steady; efficient and economic. Rogers was fast and innovative, with large amounts of equipment and people to manage in a short period of time. The ideal was “nothing but the latest and greatest” with the implication that cost didn’t matter. The Maclean-Hunter engineers were flabbergasted by the demands, confused by the approach and committed to maintaining a cost-effective rebuild. The Rogers engineers pushed and pushed demanding faster designs and decisions.
Employees floundered, testing the waters on how to work with each other. Eventually people sorted it out. In the meantime however, subcultures continued to develop. Values that some people viewed positively; such as process, struck others as negative bureaucracy. Getting things done required more and more effort, and productivity started to suffer. Instead of strategically using the original culture of Rogers as a springboard for the future, we’d ignored the issue of culture change – and now the organization had adopted a mish-mash of cultures.
Extract the best out of both organizations
> Conduct a cultural assessment of each group. This will provide a baseline view of each organization in terms of the values that are important to employees personally, the current culture, and the type of organization the employees want to work in.
> Discover the degree of commonality and the potential disconnects. This is the critical piece when it comes to building the integration plans. Knowing ahead of time where the prospective land mines are allows you to pave a smooth path forward.
> Leverage the best of each group to grow an even better culture. When a group has a value in its current culture that another group wants in its desired culture, then that value has a high chance for success in the new culture, providing that it receives on-going support and acknowledgement.
A Culture for Success
Whether you’re considering an acquisition, a merger, a partnership or a collaborative venture, be sure to do your due diligence when it comes to culture. To ignore it puts the benefits of the exercise at risk. To embrace it allows you to change culture and build an even better organization.