Successful M&As: Navigating Cultural Differences

by: Colleen Kelley

Over 70% of mergers and acquisitions fail.  Of these, estimates suggest that up to 85% fail due to mismanagement of cultural issues.  It doesn’t have to be this way.

M&As are complex. Selecting the right target, completing due diligence and negotiating the financial transaction are all-consuming efforts. Once an executive team closes the deal, there is champagne, a collective sigh of relief and hope for some respite after a long exhausting journey.  In reality the heavy lifting is just beginning.

Senior executives must now devote themselves to the fiendishly hard task of integration. There are countless operational and financial issues to tackle.  However failing to anticipate and manage cultural differences can undermine an otherwise well conceived plan.  Perceptive executives must be on the lookout for early signs of cultural distress:

  • Silos or camps forming within the two companies
  • Increasing difficulty making decisions or reaching consensus on even simple issues
  • Managers relying on familiar “trusted advisors” rather than engaging their new teams
  • Frequent “closed-door”, secretive discussions

In severe cases of culture dysfunction, one management team actively seeks to undermine the other.  This “snowballs” as employees receive mixed messages and begin to follow the lead of their managers, creating a poisonous workplace that impacts customers and suppliers.

Problems frequently start at the top. Acquired executives struggle to adjust to working with new colleagues (or rivals?) within a new corporate culture.  Some may suddenly find themselves further down the corporate “food chain” with diminished influence.   Freewheeling executives from a private, entrepreneurial company may now be part of a larger public corporation with stifling new policies, SOX compliancy and audit requirements.  It is a delicate task for the incumbent management team to maintain compliance without alienating the acquired team.

Successful integration demands effective change management.  To begin, a structured communication plan is required that includes frequent one-on-one meetings with key managers and individual contributors.  This fosters relationships and ensures that new staff members feel they have a voice in integration decisions.   Equally important is proactively and widely acknowledging cultural differences and intentionally establishing new norms for the combined organization.

You can successfully merge two companies, and their cultures, but not without an explicit cultural integration program.  Add it to the integration “to do” list along with the other synergy targets.  Start with sensitivity training and consider involving an external expert to help bridge the divide.  This may seem obvious to managers that have already sailed the stormy waters of M&A integration.  For less seasoned executive crews, it requires a steady hand at the helm to navigate around the cultural rocks upon which so many acquisitions founder.

 

With this post we welcome Colleen Kelley, VP Operations to the Stratford Managers team!

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