Let me make a bold statement: When it comes to mergers & acquisitions we spend approximately 75% of our energy in the pre-deal phase on financial, legal, and technical aspects to come to a deal, but when it comes to the actual post-deal value creation it turns out that approximately 75% of our energy is taken by people aspects. This tells us something, doesn’t it? It is no secret that many mergers and acquisitions, a whopping 70 percent researchers claims, fail to achieve their promised value. And when that happens, the costs can be painfully clear: synergies fail to materialize, morale drops, people start heading for the exits. If we really want to create long-term value out of mergers and acquisitions we need to pay more attention to people aspects in the pre-deal phase.
A couple of days ago, I had a pleasant chat with the executive leader of a multinational company, which had recently acquired, and successfully integrated, another company. What preparatory action, I asked this executive, did he take to maximize the chance that this investment would live up to, even outperform, initial expectations? What aspects, in addition to choosing the right company and doing the necessary legal financial homework (due diligence), did he and his team pay close attention to? What, in his view, was the secret to a successful post-merger integration?
Here is what he said.
“The secret words are ‘people’ and ‘together’: creating something TOGETHER that will be, quite literally, more valuable than what existed until now. In my very first meeting with the CEO of the company we were looking to acquire I asked what the ground rules would be of what we wanted to achieve together. They thought we had a pre-cooked plan. But we were aiming for the best for all people concerned, not only for our people or for theirs. We worked together on this list of ground rules, paying close attention to people aspects within both organizations.“
Smart leaders know that focusing only on M&A’s financial, legal, and operational aspects does not guarantee success, and can even destroy value. Paying attention to the people and related cultural (corporate cultures and national cultures) aspects early in the process pays (read here why cultural alignment is a prerequisite for value creation).
What people aspects should we specifically pay attention to in the pre-deal phase?
Two main aspects stick out:
1. What will the new top team look like?
Create clarity about who will join the new top team. At the moment the deal is closed this should be clear to everybody. The new top team will play a crucial role in the post-merger integration phase. It will be the initiator and facilitator of the integration process, set out the direction and short-term focus, stimulate synergies, and ensures stability and confidence. Lack of clarity about the top team will not only lead to loss of time in the integration phase, it will create confusion, doubt, and apathy throughout the organization. It is an important and often mentioned reason for integration failures.
2. Know which people issues could cause integration problems
What are the specific mechanisms that drive people performance and collaboration within both organizations? What are the core values that drive people behavior? What do people expect from the merger? What are the key elements of the culture and corporate identity? Who is considered as key talent within both companies? At what points do all these elements match, or not? What are crucial differences? What are potential consequences if we do not address these aspects effectively? Starting to think about these questions when the integration starts is too late! The C-suite needs to be aware of these potential risks before the deal is closed. Not necessarily because it could be a deal blocker, but to be prepared for it and ready to deal with it as soon as the integration starts.
I hear you thinking: the heat of deal making precludes the luxury of an extended effort to assess soft people variables. How can this be done in a phase where confidentiality and non-disclosure agreements are essential? True, but there are ways to do this! A specific and focused approach that respects confidentiality can lead to a very insightful and important overview of potential integration risks. A report that is crucial input for the C-suite.
A thought to conclude. Major agreements freeing trade and investment across continents are currently being negotiated, or have recently been concluded. To name but a few: the Transatlantic Trade and Investment Partnership (TTIP); the Trans Pacific Partnership Agreement (TTP); the EU-Canada Free Trade Agreement, … The EU also just launched investment negotiations with China. If paying attention to the people and cross-cultural aspects of mergers & acquisitions is important now, imagine its importance in the future!
Let us know what your ideas are about people aspects in M&A. Leave a comment!
If you want to know more about how to address people aspects in mergers and acquisitions, check out our services page or contact us.
Join me in London at the MERGERS & ACQUISITIONS DUE DILIGENCE CONFERENCE on 17–18 July 2014 where I speak about this topic.
Aad is a global business advisor, change leader, executive team facilitator, leadership coach, and frequently asked keynote speaker. He is founder and managing partner at HRS Business Transformation Services where he works with senior executives and leadership teams globally in three key domains: ‘leading complex change’, ‘cross-cultural leadership’, and ‘post-merger integration’. Find out more about Aad and HRS’ services. If you would like to invite Aad to your organization contact us.