MANAGEMENT OF CULTURE IN MERGERS AND ACQUSITION

By Bolaji Okusaga

Managing Director, The Quadrant Company

What is a Merger?

A merger involves the integration of all products, services, processes, systems and administrative functions of two or more organisations to improve the competitive positions of the organisations.

What is an Acquisition?

This is a structured transfer of one organisation’s assets to another in an agreed and orderly manner.

The organisation acquiring is usually referred to as “the acquirer”, while the organisation being acquired is referred to as “the target”.

Synergy Defined

WORKING TOGETHER

Combined action + operation

Greater Advantage

This assumes that the collective advantage to be gained by joining forces is greater than the separate existence of each organisation.

 2THE M&A PROCESS

     

Planning PhaseAcquisition Phase Integration Phase

     

PRE-MERGER PHASE   POST MERGER

    PHASE

     

Initiation

Negotiation & Transition

Integration 

Why do Organisations Merge?The Hard-issues / Strategic Fit

Horizontal share the same market segment in the same industry.

Advantages Expansion of

Franchise / Market share

Economies of Scale Dominance of market

segment

Vertical have different niches within a larger industry.

Advantages Expansion of product

portfolio Diversification of

product / service mix Enlargement of market

scope and customer segments

Mergers & Acquisition Failure Rates

Mergers and Acquisition have less than a 50:50 likelihood of success

Up to one-third of mergers fail within 5 years

Up to 80% of mergers never live up to their full expectations

A 3-way or 4-way merger is exponentially more difficult than a 2-way merger.

Why do Mergers / Acquisition FailThe Soft Issues

CONFLICTS OF CULTURE – this usually affects operations and processes

MULTI – VISION – this affects organisational strategy

FAILURE OF LEADERSHIP – this leads to the pursuit of self interest instead of the larger organisational interest

Why do Mergers / Acquisition Fail People & Culture Fit

Corporate culture and existing value systems Staff qualification Core competencies and Intellectual Capital Leadership styles and communication systems Strengths and weaknesses of the critical

success factors of each business units

These factors make or break mergers and acquisition deals.

Why do Mergers / Acquisition Fail Stakeholder Fears

THE SHAREHOLDERS : fear of a dominating merger partner

THE MANAGEMENT: fear of loss of position & relevance

THE STAFF: conflicts due to fear of changes in middle management

News of the Merger Commitment to The Situation

Denial Enjoyment

Fear Liking Anger Interest

Sadness Relief Acceptance

Pitfalls of the Transition Process

1. “How is all this going to affect me”2. The personal / departmental list anxiety3. Organisational proliferation – emphasis on

temporary rules & reporting relationships at the expense of the job

4. Infrequent and Irrelevant Communication5. Triangulation – conflicting objectives & loyalties

6. Time management – balancing time constraints with adjusting to the new reality

7. Leadership crisis

Checklist for an M&A

What competitive advantages do we have?

In what market(s) shall the new organisation play? What are the strengths of the partners in the deal.

Do the organisations fit together?

The vision and corporate personality is not negotiable

Problems Associated With Improper Cultural Integration

1. Realization of difference – the “them” and us “syndrome”

2. Mutual stereotyping

3. Mutual blaming

4. Battle for cultural dominance

Fixing the Soft Issues in a Merger & Acquisition Deal

Corporate Culture:This is simply put: “the way we do our thing

around here”Culture Mechanism Strategy Market

Values Structures Products CustomersStyle Capabilities Delivery Competition Reward Systems Shareholders

Cultural Due Diligence in M&A

Cultural due diligence is imperative in any M & A transaction because all mergers and acquisition transactions are human transactions; failures or successes are therefore attributable to the human factor.

Explore the cultures of the organisations involved in the deal as you explore the financials and the legal implication of the deal.

Cultural Due Diligence Process

Assessment Process involving three core steps:

-Determine Current State

-Define Desired Picture

-Conduct Gap Analysis

Determine appropriate alignment / intervention initiatives

Tools: Culture Mapping

Climate Survey

Benefits of a Cultural Due Diligence Gives employees clarity and sense of purpose Helps employees to view the integration as a

meaningful process Helps shift the focus from just getting the deal

done to making the partnership viable over the long haul

Helps employees to focus on similarities and not differences

Supports in the creation of a culture by design and not by default

Thank you