5 Dangers to Avoid
Merger and acquisition activity is at an all time high. Not surprisingly, many believe that acquiring another company is a quick, easy way to add products and customers.
But most unions fail – One KPMG study found that 83 percent of merger deals hadn’t boosted shareholder returns, while a separate study by A.T. Kearney concluded that total returns on M&A were negative.
In addition to that, another trend has developed in the merger world – rampant, post-merger lawsuits. According to a study developed by Steven M. Davidoff and Matthew D. Cain, 97.5 percent of takeovers in 2013 with a value over $100 million experienced a shareholder lawsuit.
Uncontrollable economic forces and bad strategy are usually blamed when the deal goes south, but in truth the problem can almost always be tied back to unmanaged “people issues”. People issues like unfocused leadership, internal politicking, lack of communication and culture clash. But, with a little coaching and guidance, these issues can be isolated and resolved. Without a game plan, the deal is likely doomed.
Outlined here are 5 key issues to avoid.
1. Unfocused Leadership Responsibility
Many acquisitions are upended by politics. According to The Complete Guide to Mergers and Acquisitions, “When people see top managers merely jockeying for political position in the new company, putting little or no focus on the business, its customers, or its employees, the seeds of a failed integration are sown. Ensuring that someone in charge of the integration…can mitigate the politics and create a ‘back to business’ attitude.”
A solution that is becoming more and more common is to create a position of integration manager – either internally or by contracting with an advisor (like our Merger Coaches). Deep knowledge of the acquiring company and acquisition process enabled these managers to act as supercharged project directors. Integration managers need to be able to communicate freely up and down the organizational hierarchy and in and out of different departments to understand issues and make things happen that others in fixed roles would not have the ability to do.
2. Stakeholder Neglect
Because of the delicate nature of deal-making, it can be difficult to communicate with a merging organizations stakeholders. The uncertainty that develops from that secrecy is often hard for employees to handle.
“Will I lose my job?”
“Will my pay be affected?”
“Will I have to move?”
They want to know but because most M&A deals are restricted by rigid confidentiality agreements, it’s likely you won’t be able to answer many of their questions.
In this case, it’s best to be up front with them. Tell them everything you can and admit that there are some issues you are not able to discuss currently but may be able to address later. Help them understand the game plan for managing the transition. If they understand how it will work, it relieves some of their concerns.
3. Losing Key Employees
Mergers provide a great excuse for unhappy employees to leave their positions. It is also a vulnerable time for “talent poaching”. It’s not uncommon for competitors to approach your best people, hoping to leverage the uncertainty of the future that comes with an acquisition.
The best plan of recourse in this time is to identify the critical people in both organizations needed to get the deal done and for successful integration at all levels in the company.
Your retention strategy should include both financial compensation and assurances about the future. A basic rule of thumb is to offer your key people a bonus of half their salary to stick around for one year. This bonus should be tied to performance measures or deliverables. Loyalty to a company is heavily weighed by the assurance that one will play an important role in the future of the new organization.
4. Losing Existing Customers
It’s common for organizations going through an acquisition to lose focus on external issues. This period is blighted by poor sales numbers and increased customer complaints. When sales people suffer in concurrence with a merger, they commonly question the vitality of the deal and the company they represent.
Likewise, customers may worry they won’t be able to get the attention they need or desire while you are so inwardly-focused on combining your businesses. It’s important to single out important customers or those that can be particularly sensitive ahead of time and be prepared to communicate frequently and take extra measures to reassure them. Strategies like special sales incentives and customer service communication plans that emphasize the company’s continuing commitment are crucial to surviving the transition.
5. Culture Clash
When two businesses are combined, there are four possible organizational outcomes for these different cultures: 1. there will be two distinct cultures, 2. all policies from the acquiring company will be forced onto the acquired company (or vice versa), 3. a mix-and-match policy from both firms or, 4. the creation of an entirely new culture. The nature of the deal and the nature of the companies dictates which cultural approach is appropriate. However, regardless of the circumstances of your deal, clear communication and forthrightness is always the key to navigating cultural integration.
Integration works best when you start thinking about the people issues during the due-diligence phase of merger negotiations and continue thinking about them well after the deal is done. Realigning employee motivations, expectations and everyday work environment will be a lengthy process that will require a lot of guidance from senior leadership and the HR department.
Getting the Human Resources department involved as early as possible is integral for a successful merger. Speed and accuracy for the deal is greatly increased by HR’s ability to address issues of redundancy, compensation & severance, and future staffing while the merger negotiations are still happening.
The sooner you can start addressing “people issues” and planning for them, the better you can hedge your bets against merger failure. Mergercoach has been involved in over 300 acquisitions and we have learned that these same people problems present themselves every time, regardless of industry or organization type. The good news is that we know what to expect and how to responsibly deal with issues as they arise.
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We also recommend the Mergercoach Communications Template to help you prepare for questions your people will have and how to best guide your team through this tricky process.