M&A activity has remained robust in the UK since the Brexit vote in June 2016, with Baker McKenzie forecasting US$125 billion of activity in 2017 as companies continue to look for growth and consolidation opportunities. As a solid appetite for transactions is predicted, the pressure is on for companies to deliver growth for their shareholders. After finding the right acquisition target, the next key question for management is ‘Can they deliver a successful integration?’
Achieving a successful integration is challenging to say the least. A Harvard Business Review report claims that over 70% of transactions fail to deliver the full benefits stated in the acquisition business case. Why is this? From our experience advising on integrations, we have identified “culture clash” as one of main reasons. A failure to combine the cultures of both organisations and create a strong, integrated entity can impact the new organisation in a number of ways; a loss of focus and productivity, key employees leaving and a failure to achieve the targeted synergies.
Given the importance of culture when integrating two organisations, it is worth considering these three key factors that could help your next integration.
1. Explore cultural fit in the pre-deal phase
Cultural due diligence should be conducted in the pre-deal phase to understand the differences in culture (working styles, company values, behaviours, etc.) between the two organisations. An action plan should be developed to move towards an integrated culture that represents the combined organisation.
By initiating a cultural analysis exercise in the pre deal phase, acquiring firms can build early momentum in the integration process. The key to integration success is winning the hearts and minds of employees and this can only be achieved by tangible methods. For example, when Kier Group acquired Mouchel, part of the welcome was for a Kier senior manager to be present at every major Mouchel site on Day 1 to welcome everyone and provide an overview of the company and, more importantly, their future as part of the combined organisation.
2. Define the culture you aim to build post-completion
Once the deal has been completed, it is crucial that the combined entity immediately defines its new corporate culture. This is a critical juncture in the integration phase and considerations should be given to the following activities:
- Identify the differences between the two company cultures and create actions to close the gaps between the two e.g. set up employee forums to identify and agree on standard ways of working that represent the best from both organisations
- Develop the new company values and behaviours that will guide the new organisation going forward
- Set the goals and objectives for the integration with a particular focus on the cultural dimensions and track progress
It is key at this stage that the acquiring firm looks to integrate employees from the acquired organisation as quickly as possible. Collaborative development of the combined organisation’s values is more likely to lead to a successful integration. During the BT-EE merger in 2016 the integration team were keen to promote new ways of working in the merged organisation. Where more effective EE working practices were identified these were subsequently implemented successfully across the BT Group. This was a key integration principle (‘best of breed’) and a real demonstration to employees that real changes were being made.
Where there are significant variations in cultural ‘fit’ then the acquiring company should develop a detailed action plan to bring the organisations closer together. Implementation of such a plan needs to be closely monitored through regular ‘pulse’ surveys to check how employees are feeling about the integration.
3. Secure leadership buy-in for the deal
A crucial step for any integration is to create a single management team which will drive the new company’s culture and values. This can prove challenging as typically it is the acquiring organisation that retains most of its existing senior management team in place. One way to inject a new culture and ways of working is to install a member of the acquired company’s leadership as part of the combined organisation’s senior management team. Following Majestic Wine’s acquisition of Naked Wines, the Board decided to install the CEO from Naked Wines, Rowan Gormley, as the combined company’s CEO to help drive the right behaviours and underpin the strategic reasons for the acquisition. Employees were able to see real changes in behaviour and ways of working being demonstrated by such an appointment.
Communicating change must start early in the integration process and should continue throughout the integration. Senior management need to embrace the new cultural values and demonstrate to employees the value in adopting new ways of working. This should start right at the top of the organisation. It’s essential to celebrate success; employees are more likely to believe in the new organisation if they can see the positive change in ways of working.
The ‘softer’ elements of an integration cannot be under-estimated. Any integration needs to balance the ‘hard’ elements (achieving synergy targets, consolidating offices, etc) against the ‘soft’ factors (people and culture). Building a new culture to fit the combined organisation post acquisition is a significant challenge. By following the three steps outlined above, firms can improve their chances of making future integration a success.
James Thornton is a management consultant at Moorhouse - a consulting firm that is focused on delivering sustained transformational change. Working in small integrated teams with our clients we support them in responding to their most strategic challenges. In doing so, we are able to leave a legacy of increased capability through a genuine commitment to skills and knowledge transfer.
If you would like to get in touch to discuss practical approaches to maximising the success of M&A activity and ultimately ensuring that the benefits of an acquisition are delivered, please do not hesitate to contact Mike Creasey at firstname.lastname@example.org.
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