AFTER THE CLOSING, THE UNCERTAIN RIDE, Part 1: The Targeted Outcomes of an Acquisition are often Elusive
By Tracey Grose, Originally published on LinkedIn, November 30, 2018
The financing is in place, negotiations have concluded, the deal is done. The acquisition makes good sense for both companies with the right synergies of products and markets. The deal can only result in success for all parties, but then it doesn’t.
Too often expectations go unmet or take much longer to realize as companies witness lost productivity, lost talent, lost revenue, and lost opportunity. In hot labor markets, the loss of talent can be particularly painful. In many cases, a meaningful return never comes together. Certainly, acquisitions vary in purpose. Some are focused on obtaining the technology or product or they just aim to kill competition. This article, and the research currently underway, concerns the deals in which the talent of the acquired company is a key aspect of the investment.
The problems always come down to the human component. The most common refrain in M&A is: “Each deal is unique. And each deal is more difficult than expected.” Culture clashes and fear-driven behavior by individuals and groups can distract teams from productive activities and can stoke dysfunctional behaviors that can asphyxiate your business.
Each deal is unique. And each deal is more difficult than expected.
Mergers and acquisitions are
growing globally. The first half of 2018 outpaced
prior years with a record $2.5 trillion in deals globally. Looking
specifically at cross-border activity between the US and Europe, investment
reached a decade high of $172 billion in the first half of 2017 according to Thomson Reuters. US
investment was concentrated in Switzerland and the Netherlands, and the UK was
the strongest European acquirer of US companies. Healthcare accounted for 29%
of total investment value between the US and Europe.
This is a good sign for innovation and the global economy, as cross-border activity drives the flow of ideas, investment, shared business practices, and shared values. For an individual company, the successful integration of transnational acquisitions can boost competitiveness through the acquisition of deeper cultural and market awareness and global business practices. Nonetheless, where different global cultures are part of the transaction, the risks are even greater of culture clash and missed strategic alignment undermining the successful integration of an acquisition.
Across multiple studies, company culture is cited as the top factor in delaying or impeding the success of an acquisition (Cancialosi 2017, Bouwman 2013, Cortina 2015, Recklies 2015, Able 2007). Yet, 58% of acquiring companies do not have a process for cultural integration. With global M&A activity on the rise, what can companies do to better mitigate the real risks of a failed integration and ensure the positive performance of the investment?
There are very different approaches to the integration of two companies. Some companies try to stick to a machine-like process and expect employees to respond accordingly. Some companies are more adept at making a transition a success mainly because their corporate culture already reflects a human focus. Although very rare, some companies look at cultural fit first, before spending much time on the financial aspects of a potential target.
While most large global companies have a full-time M&A team, this doesn’t always result in success. Middle market companies are also contributing to growing M&A activity, but they typically don’t have a standing M&A team. Unfortunately, most companies don’t spend much time considering the cultural transition and the experience of the individual, and instead, they assume that with time, everything will fall into place on its own.
A structured process of cultural integration, that progresses in parallel with the financial, legal and market aspects, can reduce the time and cost of the acquisition process and help ensure maximum value is delivered.
It’s better to have a strategy: a human-centered approach to cultural integration. A structured process of cultural integration, that progresses in parallel with the financial, legal and market aspects, can reduce the time and cost of the acquisition process and help ensure maximum value is delivered.
Working with an outside consultant to facilitate and manage a structured integration process can be beneficial to:
- Help leaders integrate the complex issues related to individuals and culture into their decision making in an efficient and impactful way.
- Help leaders understand how they can assess and actively mitigate potential problems that arise from natural human and group reactions to disruption and change.
- Help leaders learn how they can actively shape the company culture they desire.
- Keep the process moving forward by managing the coordination between all the necessary people and decision makers throughout the different phases and tasks within the desired timeline.
- At the end, develop a tailored company cultural integration playbook for future acquisitions based on the learnings of the process and the unique needs of the company.
Stay tuned for more insights from the series, “After the Closing, the Uncertain Ride: A Human-Centered Approach to the Cultural Integration of an Acquisition or Merger.”
If you have ever experienced an acquisition and have a story to share, regardless of your role in the company, I'd like to hear from you. Interviews are on-going in English, German and French.