Mergers and acquisitions – trade secrets

Effective leadership is vital in realising the potential value of mergers and acquisitions. Leaders need to communicate effectively to engage stakeholders across different cultures. This requires insight and ­imagination to understand the history and value of both businesses, but also the physical and ­emotional resilience needed to make difficult decisions about the future direction of the business to get through demanding times.

Leaders have a major role to play in terms of the changing culture of the organisation, both in embodying the style, skills and approach required for the new business to be successful, but also encouraging desirable activity and behaviours, both through the content and style of their interactions with all parties.

When selecting someone to lead a merger or acquisition organisations need to:

  • invest time in selecting the most appropriate person
  • think about the proposed values, style and modes of operation of the new organisation – these are generally a strong determinant of the most appropriate leader
  • think about the leader’s past experience, their areas of capability and their personal style – these are strong indicators of whether a person will be the right fit even before they make their first management decision.

Morale and engagement

It is people who determine the success or failure of businesses, and this is why maintaining employee engagement needs to be at the forefront of employers’ minds when going through mergers and acquisitions. Only through firmly positioning people management at the heart of the process can the challenges of different approaches, such as communication, and other cultural obstacles to integration, be removed.

One of the key differences an effective leader can make is maintaining morale and engagement through the process. Leaders should:

  • tell it as it is – mergers or acquisitions are often a must if organisations are to survive or reach their potential
  • explain to stakeholders why the merger or acquisition is relevant and the advantages to them
  • provide a clear and accurate view of what the future looks like, the path forward and the skills required
  • provide a rationale to counterbalance the distress and discomfort that mergers often cause.

Common difficulties to overcome

There are a number of ways that organisations going through a merger or acquisition can fail, but failing to understand the relative cultures, strengths and key areas of skills within the forming partners is one of the surest.

Understanding the history of the companies involved and using simple diagnostics to gauge the culture are important leadership tools. In acquisitions, objective assessment of the key players in both parties provides an important input and understanding for making the most of the talent available. Only then will employers be able to identify, retain and energise people with the key skills to run the new organisation.

The challenge of driving action in cultures that may have different ways of doing things, while retaining a focus on business as usual, is significant.

Understanding the culture of both sides and working out how to get things done quickly is a core barometer of a leader’s ability to be effective through mergers and acquisitions.

Managing cultural differences

Often the first top team created after a merger or acquisition is the consequence of horse-trading to get what is perceived to be a fair balance across both organisations. But it may not contain the best people for the job.

Whatever can be done to prevent fighting at the top will help prevent this filtering all the way through an organisation.

It is important to see that integration is reflected across the organisation – this may result in a mix of people being selected from both sides, to lead or join teams, who are not necessarily the best.

Employers must remember:

  • compromises have to be made, to aid integration and ensure a balanced understanding of the two constituent businesses
  • creating a new culture for the new organisation, expressly by communicating the values, behaviours, processes and strategy that will be required, is important as part of shaping the change process
  • leaders need to identify the right behaviours, demonstrate them through their own behaviour and embed them through the course of the appraisal process.

Key factors in success or failure

The difficulty of realising the potential value of a merger or acquisition has been well documented and research shows that only one third of mergers achieve expectations in adding value to a company’s worth.

Selecting the right person and teams to steer through a merger and acquisition is key to success. Many mergers run into problems because leaders do not look at the issue of cultural fit between organisations and people management issues are often not given the high priority that they should be.

While avoiding the common mistakes in mergers and acquisitions may not seem like rocket science, the fact that these mistakes are common means that avoiding them is probably more difficult than it appears.

Regardless of the size of the merging parties, YSC’s experience is that the more aggressive culture prevails.

Similarly, we have found the time it takes to get the job done is another crucial issue in the effectiveness of the merger and acquisition activity. Leaders need to act quickly, be good decision- makers and recognise what corners cannot be cut in pursuit of pace and change.

Case study: YSC

YSC worked with a communications organisation going through an acquisition. This brought together two different businesses.

The communications organisation was built on strong infrastructure, a steady approach and relatively static share price, in an environment of tight finances and a history of change that had not stuck. By contrast, the company it bought was a bright, aggressive and entrepreneurial business that was young, taking market share and being rewarded for it.

People from both organisations were chosen to sit on the board to ensure the acquisition was successful. Through transition, the organisation used YSC’s support in designing and running the selection process to directly involve managers in selecting their people. During selection, the business focused on potential and attitude. The balance here was between being courageous and taking some risks in promoting talent, while retaining the technical expertise of some established players. While the process was hard and uncomfortable for those involved, the results of the acquisition testify to the quality of the leadership through the exercise.

Some of the factors that underpinned success were:

  • the business created a strong sense of accountability for team performance
  • there was considerable focus on the kind of culture that the business wanted to create
  • the leadership team acted swiftly.

 

Top tips for a successful merger or acquisition

  • Have a clear narrative for employees on the benefit of a merger or acquisition and how it makes sense to the market and to key talent in the business
  • Ensure there is quick, transparent decision-making
  • Put in place a clear, efficient and fair process for making the important people decisions, and an approach to selection that treats leavers with dignity
  • Honour the past in both businesses
  • Ensure there is a separate change team that manages the merger process while management runs the business
  • Ensure the timely exiting of those who act as a blocker to change.

Our expert

Miles Teasdale is director and head of talent benchmarking at business psychologists YSC. Founded in 1991, the company has expanded into a global business servicing mainly multinationals, including more than one third of the UK’s FTSE 100 companies. It also works with smaller organisations, the public sector and charities.

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