Mergers and Acquisitions have now been cited by Goldman Sachs as the primary global growth strategy for large-cap companies. The last twelve months have seen the return of the strategic inquirer, with blue chip companies driving deal frequency and volumes not seen since 2007 and 2008. Yet, almost religiously, study after study shows that mergers and acquisitions fail at rate of 70% to 90%, leaving massive intellectual, creative and financial currency on the table.
The number one reason for M & A failure? Culture clash.
And a decades long flawed strategy titled “integration.”
Here’s the unspoken truth accompanied by the predictable chain of events.
An M&A is an arranged marriage.
- There is no love at the beginning.
- The issues start Day One.
- Executives announce the once hush-hushed M&A information.
- Employees feign excitement as FEAR ripples through both companies.
- The C suite announces: “This will be great for everyone!”
- No one is buying that promise.
A culture of SURVIVAL thinking and behaviors is now in play.
To quiet the fear, a WILDLY FLAWED STRATEGY called INTEGRATION is announced.
Despite the classic definition of integration, deemed a process that will create equality between separate parts, integration in business is a process of fitting something new into something old. Think square peg, round hole.
Integration teams (old vs. new) are quickly assembled that lack the core requirements for success:
- The time, one committed year at a 24/7 pace, to figure out how to merge the two cultures (culture is complex)
- The training in psychology to deal with human beings’ reactions to change of this nature
- Branding savvy
- Internal and external communications mastery
- Change leadership knowledge
- Coaching knowledge
- Organizational development knowledge
- An unbiased point of view
To be blunt: You can’t manage what you don’t understand.
A death spiral starts:
- Top talent flees
- Messaging becomes uninspired
- Objectives become vague and unclear
- New sales and marketing teams have NO EMOTIONAL CONNECTION with the products and services
- Workloads become unsustainable
- Fear, resentment and unhappiness set in SUCKING THE AIR OUT OF AN ORGANIZATIONS ABILITY TO INNOVATE
Ultimately, the larger companies’ organizational principles win and the entrepreneurial company’s practices lose.
There is A WINNING WAY!
First and foremost, it is a conceptual PARADIGM SHIFT. In lieu of integrating the companies, all stakeholders commit to a true metamorphosis.
Our definition of metamorphosis:
–A COMPLETE TRANSFORMATION
- A radical change of form, structure, and substance
Transformation in business, especially after a merger and acquisition, is the commitment to literally build a new culture (and company brand) from scratch.
Who should lead this metamorphosis?
A Navy Seal team of culture and communication experts whose only agenda is the new entity’s success.
How will this be accomplished?
Through a series of four missions, each targeted at redrawing, launching and living the new culture and communication systems.
First 90 days:
During the first ninety days of a Merger and Acquisition a rigorous facilitation process begins, led by Culture and Communication experts. The goal: complete stakeholder transparency regardless of what has or hasn’t been said leading up to the M & A. Like in life, when people are dating, they don’t always fess up to what they really want. Stakeholders, in this context, mean the C suites of the two companies, the acquirer’s board of directors and all capital investors.
This directive drives a round of intensive meetings and off-sites focused on identifying everyone’s true objectives. Financial objectives. Strategic objectives. Growth objectives. Brand objectives. Innovation objectives. Corporate sustainability and governance objectives. Consumer and service based objectives. New product objectives. Beginning discussion of culture objectives.
To achieve success, this must be done with unbiased facilitators present – culture and communication experts who can ensure that a safe haven is created for all parties to speak their minds, extend unabashed honesty, and come to initial operating principles; even if at this point, one accord is not yet possible.
Simultaneously, through 360-degree assessments and in-person meetings, Culture and Communications experts do a deep dive analysis of each company’s existing operating structure, good and bad. A truly fresh look at organizational principles, execution competencies, creative output and happiness factors are prepared for the Stakeholders cited above to review.
Remember, alongside everyday pressing business realities, these conversations are being addressed in the face of globalization, 24/7 information access, empowered consumers, warp speed market movement, and competition of gargantuan proportion fueled by the age of the knowledge worker.
If a beat is missed, the consequences can be fleeing customers (Netflix once lost 1 million customers in 24 hours), brand damage, financial loss and ultimately, and shockingly, obsolescence (Blackberry).
Second 90 days:
The second 90 days has two facilitated directives for the Culture and Communication experts; Safety management and Customized Culture Innovation
Part one of the M & A mission is to successfully address “the truth about people.” The #1 driver of all human behavior is the need and desire for safety. Let’s face it; no one wants to get hurt. Meetings must be skillfully generated to answer the numerous “elephants” in every room:
Will I be fired? I
If I stay, will I be respected?
Will I be resourced correctly?
Will I gain or lose autonomy?
Will I be encouraged?
Whom can I trust now?
Is my purpose different now?
Is this still a place where I can stay?
If these questions go unanswered the psychological ramifications are:
—I can’t afford to fail so I’ll play it safe.
—I’ll jockey for position even if someone else gets hurt in the process.
—Even if I succeed, someone else will probably take the credit, so why bother?! Less becomes more.
Simultaneously, and deployed as a sure-fire way to expertly manage fear, an exciting, empowering and facilitated series of Leadership Innovation Summits are rolled out to allow top-tier leaders to completely redesign the company and brand, from top to bottom.
Remember, this is a metamorphosis, not an integration process and the Gods of innovation are summoned forward. New vision, values and behavioral agreements have to be designed including but not limited to decisions about:
- Autonomy, shared resources, information flow, R & D, innovation processes, sales strategies, brand narrative, market positioning, customer service, strategic partnerships, work/life balance, leadership team development, team building, crisis planning, internal training, customer communications, media relations, investor relations, social media engagement, thought leadership campaigns, competitive surveillance, company intranet, company email communication, company videos, cross functional team alignment, new employee orientation, feedback mechanisms.
Third 90 days:
The Third 90 days is a facilitated sell-through to the entire company. No one is left out of the metamorphosis; it’s all about closing the culture loop. This is done through a combination of town-hall meetings, additional Innovation Summits and on-the-ground team building exercises.
Fact: Engaged and satisfied employees create loyal customers.
Statistically, a 5% increase in customer loyalty yields a 25%-95% profit increase. And as for the C suite, internal communication and alignment is the top factor in determining a CEO’s reputation, which is in turn critical to shareholder value.
Fourth 90 days:
The fourth 90 days is committed practice makes perfect (facilitated).
The new culture and its agreements are experienced, further analyzed, refined, measured and retested. This is done through a variety of innovative assessment tools.
The end game: All stakeholders participate in creating, customizing and catapulting the new entity to maximum success, creating an unstoppable sense of ownership and momentum.
The end game: Everyone is encouraged to lead. Mature “knowledge worker” teams think and act quickly.
The end game: Customized Cultures steadfastly create breakthroughs in products and services that lead to new strategic business models.
The end game: All currency is left on the table.
If you don’t believe us, the truth is in the numbers:
- Quaker acquired Snapple in 1994 for $1.7 billion. Just 27 months later, Quaker sold the company for $300 million.
- In 2008, the owner of Arby’s bought Wendy’s for $2.34 billion. Only three years later, Wendy’s decided to sell Arby’s to a private equity group after the roast-beef sandwich chain continually struggled to grow its profits.
- Bank of America’s acquisition of mortgage lender Countrywide in 2008 would later be referred to as “the worst deal in the history of American finance.” The bank paid just $2.5 billion for Countrywide, a deal that ended up costing the bank more than $40 billion.
- For $11 billion, Kmart acquired Sears in 2005. Sears’ revenue dropped by more than 10 percent in the years following the merger, according to the New York Times. Eddie Lampert, the investor in charge of the deal and CEO of Sears, was deemed the worst CEO of the yearin 2007.
- eBay decided to buy Skype for $2.6 billionin 2005, only to sell the company four years later for $1.9 billion. The companies were unable to successfully integrate their technological systems, according to PC World.
- In 1998, Daimler-Benz bought Chrysler for $36 billion. Ultimately, Chrysler’s focus on accommodating customers with lower incomes did not fit with Daimler-Benz’s luxury car making business model. In 2007, Daimler-Benz paid $650 million to Cerberus Capital Management to sever its ties with Chrysler, according to Time.
Statistics don’t lie: it’s time for a new WINNING WAY!
What has your experience been with M&A? What do you think about The Winning Way? Post a comment below.
This post was co-authored by Debbie Robins and Laura Nobles of Formula C Partners
Laura Nobles – Co-founder and Partner, Formula C Partners
Laura is a marketing and public relations expert with deep knowledge and an extensive track record of success across multiple industry sectors. She is a trusted C suite advisor who offers clients strategic thinking and communication programming designed to drive market adoption, sales growth and, when appropriate, successful exit strategies – including mergers and acquisitions. In fact, her direct experience with traditional mergers and acquisitions fueled her passion to co-found Formula C Partners with executive leadership guru Debbie Robins. With more than 20 years of experience, Laura is adept across virtually all communication disciplines. She has an innate understanding of how to interest, engage and influence a range of stakeholders that are important to each client’s business.