Archive for Mergers

Culture Matters in M&A

ROIEvery company has their own culture – basically, the manner in which employees behave, follow common norms and interact with each other – this includes values, behaviours, assumptions, and the understanding of a common mission. The culture makes up a company’s ‘personality’. Within that, you will find teams and departments that have their own slightly different culture from the overall company culture, ‘mini’ cultures of a sort.

Typically there are many similarities between the two, although it is possible for companies with a highly competitive culture contain mini cultures of collaboration and entrepreneurial kinship. For example; where the operations are somewhat cut-throat yet the development team isolate into a unified and solid group of collaborators.

Most companies have a pretty good unwritten understanding of their own culture and with just a few questions are able to define the existing culture fairly well and then work with us to identify areas of needed growth or change. It is when companies merge or an acquisition has been made that culture becomes a significantly different conversation. Sadly, few mergers and acquisition (M&A) pre-work evaluates the differing cultures to identify risks associated with the merger or acquisition.

The greatest risks associated with bringing two companies together often lay within the strongest reasons why two companies want to join forces in the first place:

Financial – M&A selection is vital to understanding the financial benefits and possibilities due to a complimentary, formerly competitive or growth opportunity into play.

Brand Association – There are some great benefits to leveraging a solid and well-loved brand to create a stronger and more powerful company offering to the customer.

Knowledge – Picking up or combining forces to obtain or grow the technical or industry knowledge for a company, add technical competency or expand an offering based on an additional functionality desired.

All the above sounds pretty great, but what’s great on paper is not always deemed so great by the people being asked to live the change. In fact, the people with the greatest power to make or break a merger or acquisition can be middle management through to front lines and yet those areas are the most often ignored within the M&A transition plan.

Understanding cultural risk, cultural collision and people strategy are vital in making certain that large investments such as M&A actually realize their return on investment.

Transitional planning is needed right from the beginning of a merger, preparing for culture clash or shock, planning around every small change that affects the manner in which people from both organizations do their everyday work, creating a change plan that involves a solid communication strategy, all of these are vital in an M&A program.

Based on research, where does a good transitional plan begin?

  1. Organizational Culture Assessment: a system of shared assumptions, values and beliefs which govern how people behave in organizations. Evaluate each company and determine any commonalities.
  2. Evaluate the 8 Organizational Cultural Characteristics: evaluate the priority that the company values would assign to each of the following organizational characteristics.
    • Innovation – risk orientation – evaluate priority high, moderate, or low.
    • Attention to Detail – precision orientation – high, moderate, or low value?
    • Emphasis on Outcome – achievement orientation- high, moderate, or low?
    • Emphasis on People – fairness orientation – high, moderate, or low?
    • Teamwork – cohesiveness orientation – high, moderate, or low?
    • Aggressiveness – competitive orientation – high, moderate, or low?
    • Stability – maintenance orientation – high, moderate, or low?
    • Agility – change orientation – high, moderate, or low?
  3. Develop a transitional plan based on a comparison of both companies developing action items that address commonalities and friction points.

These are steps for the beginning while the purchasing company is assessing financial risk. Companies putting out money to purchase or merge with another company should understand the cultural risks of the deal. Comparing the two organizations is vital in knowing just where to begin with a transition plan.

Do you have examples of organizations that have merged and failed to do the cultural assessments and develop a solid work it into a solid transition plan?

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(Note: 8 Organizational Culture Characteristics from Professor Roger N. Nagel at Lehigh University – our assessments and research utilizes these characteristics in addition to other organizational research.)

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Business IS of the Heart

…When Cultures Collide in Mergers and Acquisitions

Business consultants tell entrepreneurs to know their exit plan, and many focus on a merger or acquisition market as they build their businesses. This is especially true in the technology or engineering space, where valuations are done of a technology which may be attractive to larger firms looking to grow their offering.

When a valuation is being performed on a company prior to merging or acquiring it, that valuation is usually based solely on the financial side of the business. A careful calculation of the assets and liabilities, the varied business market, the intangible assets like trademarks or patents, financial reporting and more. A company does their homework before any merger or acquisition, and typically if a sale goes through, they feel confident they’ve made the right move.

But there is one thing that is rarely done… and that is a careful study of the differences between the company cultures. Culture is about shared attitudes, values, goals and practices that make up the “personality” of a given company. Personalities are important. Imagine, if you will, two people discussing getting married and they both have children and homes.

Of course ‘marriage is of the heart and this is business’, you say?

Well, two companies coming together needs to be treated like a marriage. If you were considering marrying someone, you do need to consider your partner’s financial health and see if it matches yours, but is that all you would look at? I would think you should see if there is compatibility of the values, attitudes and practices. How you raise your children and how they raise theirs may be so far removed from one another, you could be creating Armageddon rather than a loving, caring blended family. It could be that you are sending a child or two on a run-away spree, or will be forever burdened by being the nasty, horrible and wicked step-parent no matter how hard you try.

image courtesy of Presentation-Process.com

This little analogy is very apropos for M&A (Mergers and Acquisitions) and cultural evaluations are starting to make headway in some M and A analysis of companies. Why?

Because after you buy the company and by the time you ask a consultant to come in and help with the messy change management of the two cultures, it can be too late.

It is imperative the company buying takes a careful look at the culture of the company being purchased and consider this in their valuation. A company purchasing a heavily creative and innovative group whose mandate it has been to focus on the customer may find their new family clashing with a process driven conglomerate whose focus is global spread and, trust me, that can be disastrous. In fact, in technology, the key component to a wise purchase is in determining how to retain the knowledge held by the employees. Your software is only as good as the people writing it, and you want them to stay.

I am not saying it cannot be done or to avoid the purchase, what I am saying is, you better already have a great plan in place for merging not only the technology or the company, but the cultures too. Doing your homework needs to be holistic, not finance specific, know what pitfalls and roadblocks you will suffer if culture is left out of the equation, or that beautiful valuation sheet may very well be worth far less once the knowledge has walked out the door.

There are things you can do to prepare in advance:

  • bring someone in who understands how to evaluate cultures and
  • work at building a plan of action toward a healthy merger or acquisition, upfront.

It behoves you to do so, because business is of the heart, and shouldn’t be about wasting money or losing talent.

 

Patti Blackstaffe works with people and organizations to develop

Happy Workplaces world-wide guiding them toward mastery and leadership

through consulting, advising, coaching, speaking, and delivering training.

You can reach Patti at 1-855-968-5323 | contact her here | book her to speak


 

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