Seven Steps For Cultural Integration During A Merger Or Acquisition
Banner year for M&A in 2015
In 2015, there were nine deals valued at $50 billion or more. For example, Anheuser-Busch InBev agreed to purchase brewer SABMiller for $105 billion, and Pfizer Inc. agreed to buy Ireland-based Allergan for $160 billion to create the world’s largest pharmaceutical maker. Walgreens acquired Boots Alliance and then Rite-Aid. In the media world, Charter and Time Warner also merged.
We’ve observed that there have been many mergers and acquisitions in the last few months as well. For instance Shire has acquired Baxatla, and Dow Chemicals and DuPont. The list goes on and on.
Will even bigger deals become part of the M&A landscape in 2016?
According to a recent 2016 M&A report by KMPG, last year was the biggest ever for U.S. mergers and acquisitions. By year end, $4.7 trillion of global deals were signed, topping 2007’s previous record for deal value. U.S. executives expect another banner year for deal activity in 2016, according to a survey of over 550 M&A professionals conducted by KPMG, in partnership with FORTUNE Knowledge Group
These executives expect the number of M&A deals to accelerate and the average deal size to increase in 2016. Findings from the survey— KPMG’s 10th annual study of the M&A outlook—suggest that M&A remains the preferred growth strategy. What are the main factors driving deal makers? And what explains the seeming resilience of M&A in the face of global political anxiety, sluggish growth across emerging markets, and uncertainty surrounding interest rates? This report seeks to provide answers to these questions at a critical moment in the global economic cycle. Mega deals appear to be on the rise.
M&A is a notoriously difficult undertaking
According to KMPG survey respondents, the most important factor for the success of a deal is a well-executed integration plan (39 percent). Other key elements include the correct valuation (31 percent), an effective due diligence plan (18 percent), and the general economic environment (11 percent).
Early planning is key to developing a well-designed integration plan. In general, many of the important post-close issues will be revealed during due diligence. Companies tend to emphasize valuation issues during the due diligence phase. However, by also focusing on integration risks and post-close opportunities, acquirers can gain important information that can greatly enhance deal results. During the first 100 days, management needs to develop a methodology for understanding exactly where and how the acquired company makes money. The management team must be able to track and prioritize the key profit drivers in the organization as soon as possible.
What is the role of cultural integration?
An old friend of mine and management guru, Dr. Michael Hammer, the author of “Reengineering the Corporation”, frequently reminded me that most major process redesign, reengineering and mergers and acquisitions fail because of poor integration, lack of communications and incongruent cultural fit. After conducting our own research of recent mergers and acquisitions, we have tangible proof that there are successful things a company must embrace during the integration process to ensure acculturation and moving forward successfully. Without a clear sense of unity, direction, vision, mission and culture companies will be more likely to fail.
Inward’s Cultural Communications Model
As a result of our research studying several recent mergers and acquisitions case histories in-depth, we have identified seven things that should be included into the integration plan by marketing, communications, and HR professionals. These steps should be process driven and rigorous in the same way the financials are reviewed by the bankers. They include the following:
- Leadership structure - The structure of the new organization must be clearly defined and presented in a clear and cogent fashion. This should include functional heads from each department of both companies. This step should identify a clear integration timeline, and demonstrate unity and agreement on all key topics and issues.
- Cultural differences, diagnosis and prescriptions - Conduct research to determine differences within each corporation in regard to cultural strengths and weaknesses of their respective companies. Enable visualization techniques such as word clouds to enable common ground in regard to cultural integration. Attempt to build consensus through social media such as SharePoint, Yammer and help overcome disparity and arrive at agreements.
- Establish a communications council - Bring together key functional leaders to navigate the communication requirements, frequency, and talking points that need to be conveyed to the organization. These talking points should be transparent and honest in regard to consolidations and possible layoffs, timetables, and expectations for the future. This group should utilize experienced and professional communications/change management professionals who understand message architecture and who can explain why it is important for the company, why it is important for the individuals (WIIFM), and what new attitude/behaviors are necessary for successful merger to take place.
- Define the new culture - Using collaborative software and social media, attempt to isolate the key cultural elements desired in the new merged company. Try not to hold onto old values of each respective company, but rather unify all constituencies around something new, fresh, and exciting for the future. Rewrite and socialize the new cultural manifesto and statements, and celebrate how it came together, and how it will contribute to future success.
- Vision, mission and values - Elaborate on the new culture by defining the mission, long-term vision, and collective values of the new company. Be as inclusive as possible, seek out opinions, provide regular feedback, and report progress at all levels so that it gets cascaded down into the organization and into the field.
- Cultural communications plan - Senior leadership must take responsibility for the communications plan, and be front and center and own it. Communication is not a task that can be delegated to lower-level functional people. There should be a systemic, sequential, tactical communications plan with a set timeline for full integration and measurement to gauge the buy-in. Communicate regularly and frequently using all new technological innovations and techniques such as social media, online platforms, gamification, and web-based employee forums. Attempt to brand the cultural communications platform with logo lockups and icons.
- Measurement and benchmarking - To demonstrate success and report on progress, it is important to conduct benchmark research to assess the understanding and progress over time. In addition, consider ongoing measurements rather than singular moments in time on a calendar. Survey constituencies every month with five short questions and report the findings fast through regular communications at all levels within the organization.
Cultural transformation in a mergers and acquisition environment is not easy. It should not be taken for granted. It must become a business process that is rigorous, structured and accountable. Companies that are not successful at cultural integration do not succeed in the short term or long term. It is hard work and companies should seek out guidance from professionals just like they seek out guidance for the financial/banking transactions and legal ramifications from attorneys and law firms.
If you would like to discuss how to integrate cultures through a complex merger and acquisition please give us a call.