When you buy a company, you buy the power of people.
Just this month, over a dozen takeover deals worth more than $120B have been announced, including megadeals like Walmart and Flipkart, Sainsbury and Asda, and T-Mobile and Sprint. Total deal volume for 2018 is already at a record $1.7 trillion, beating the pace of pre-financial crisis highs. Cheap money at low-interest rates has fueled M&A activity for the last decade but, as interest rates rise, the takeover frenzy is peaking. Mergers are not bad, yet half of all mergers and acquisitions fail. The danger is even more acute this late in a business cycle when everyone is rushing to lock in a deal to accelerate growth.
Most failed mergers and acquisitions can be attributed to poorly planned integration. When a company is in a rush to close a deal, and it looks good on paper, they often ignore culture. And they continue to dismiss it during post-merger integration.
As soon the deal is done, many of the first steps are about people: retaining leaders, engaging employees in the change, assuring customers of continued excellence. Culture is difficult to shift in the best of times; combining cultures of two organizations is even harder. Due diligence, therefore, should focus on understanding the people and their cultures as much as strategic fit.
The understanding of both cultures provides a basis for aligning leadership on the purpose and plans for the combined business. Research shows that employees going through a merger look for trust, stability, confidence and empathy in their leaders. Managers who are uncertain of the path or unable to directly address employee concerns will undercut any efforts to integrate the business. Uncertainty among leaders and managers is the greatest enemy of an effective merger.
So what can you do to better plan a deal and integrate two businesses? First, conduct a culture assessment. A culture assessment is an objective, quantifiable method to accurately evaluate and document current cultures across both businesses – including behaviors, expectations, and how decisions are made and executed.
Our PRIDE culture assessment focuses on five strategic areas:
- How do PEOPLE interact?
- How are RESULTS recognized?
- How is INNOVATION approached?
- How are DECISIONS made?
- How are goals EXECUTED?
We use a combination of qualitative and quantitative research to gather data and create a detailed picture of the culture, which will then feed a post-merger integration plan that focuses attention on the most critical aspect of the integration – the people.
During a merger the challenges are acute and the stakes are high, but the opportunities are just as great. After all, a merger is a unique chance to spark innovation, taking advantage of the strengths of two cultures. Culture is the only truly sustainable competitive advantage for any company and the key driver of failure or success. Great companies understand that and act on it.