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 Make no mistake about it, mergers and acquisitions
are here to stay. Take Singapore
as a case in point, for her to develop into one
of today’s World Financial Centers, the
Monetary Authority of Singapore (MAS) at some
point in their banking history encouraged their
four largest local banks to acquire and merge
with the smaller local banks to become bigger
and stronger. This was necessary for them to meet
up with the competition from larger international
banks. The positive results are now history as
the Singaporean Big Four were ranked by Moody
(a U.S rating agency) as financially amongst the
strongest and best capitalized in the world.
The Nigerian Banking System is sure in need of
sound fiscal and monetary policies particularly
as it relates to Bank Capitalization. Let me exercise
caution here to mention that these policy changes
were not restricted to the banking industry alone,
but it affected all parts of the financial sector.
With advice in form of industry proposals and
views from management consultants and industry
committees, steps were taken to promote the (i)
asset management industry, (ii) promote the growth
of the capital market (by freeing up commission
rates and access to the exchange) and the (iii)
internationalization of the currency. These are
practical tested and tried out lessons Nigeria
can today borrow from Singapore and then work
conscientiously to build our own Nigerian
Model.
However, no matter how adept top executives have
been in working the art of Mergers and Acquisitions
(M&A), many are now singing the post M&A
blues. According to a KPMG International study,
83% of mergers and acquisitions fail due to mismanagement
of cultures. Merging balance sheets it turns out
is far easier than merging cultures. Executives
must therefore analyze the culture of the two
companies before considering a merger or acquisition.
The good news is that while culture is usually
not changed quickly, processes are available to
understand the “legacy” cultures of
both merged and acquired organizations and to
create a new culture for supporting the new enterprise
strategy.
This is a three part article. We would attempt
in this part 1 to have a quick run through of
the underlying items in understanding the legacy
cultures of organizations. In the
subsequent two articles, we would discuss the
key factors necessary
to determining if good or bad chemistry
exist between prospecting merger companies (part
2) and common pitfalls
on the path to merger success (part 3).
CLARIFYING
CULTURE
Culture is the pattern of norms, values, beliefs
and attitudes that influence individual and group
behavior within the organization. In short, culture
is “the way we do things.” Culture
therefore is not an independent variable in the
business equation; rather it exists or should
exist to support the business strategy.
ASSESSING
THE CULTURE
While unquestionably, organizational culture is
the “soft side” of business reality,
we know it can be a real M&A buster. It is
critical to first understand and assess the current
culture of both companies involved in the M&A
process, giving ample weight to issues
of culture during due diligence.
Please note that the purpose of cultural due
diligence is not to eliminate culture clash-an
unlikely event even in the best of circumstances,
nor is it to find a perfect fit between two organization.
But while a wide gap is unhealthy, the best mergers
occur when a fair amount of culture differentiation
prompts debate about what is best for the combined
organization. These discussions should be well
underway before the merger occurs.
UNDERSTANDING
VALUES
Values are a key element in assessing culture-
values that are both explicitly stated as well
as those that are implicitly held in an organization.
In an M&A situation, it is key that both types
are examined and intimately understood.
The strategy of an organization is a goldmine
for the discovery of explicit values within an
organization. For example, what does the mission
statement say about the organization and its goals?
What values are manifest in strategic statements
dealing with future markets, future products,
capabilities and financial expectations? What
does the annual report emphasize? Such statements
speak volumes about the culture of the organization.
CULTURAL
INTEGRATION
Once you develop an understanding of the current
culture, and have compared that with the goals
of the merged organization, it is time to think
through what it will take to implement that strategy.
This process requires consideration of a number
of factors, including organization structure,
operating and decision-making apparatus, reward
systems and people-related issues.
The project plan for the integration has the
following common elements:
- Establish the Strategic Context Early On
This can be formulated by asking and answering
basic questions about the vision, product and
market scope, critical issues, competitive advantage
etc of the prospecting merger companies.
- Communications
An important element for managing a company’s
culture in preparing for M&A activities. It
is even more important in the period leading up
to and following closure of the deal.
- Identify and Resolve Important Cultural Differences
- Identification of Leaders
There are two distinct issues: first is the need
to ensure that the executive team is aligned with
the new strategy during the integration process.
The second is the creation as quickly as possible
of a new management team. Even if an interim team
is required (as is often the case), changes to
the management team must be completed soon enough.
This is because until the final management is
in place and operational, UNCERTAINTY exists and
will be manifested first in high employee turnover.
A mass exodus of customers moving to the competition
is typically next.
CULTURE
DOES MATTER
Creating a cohesive culture from two distinct
entities is a challenge. But in today’s
business environment characterized by large numbers
of M&As, it is very essential that companies
take cultural issues seriously as they do financial
ones. Attention to culture
has proven to make the key difference
between success and failure. Otherwise, the
urge to merge may prove to be a costly impulse.
Submitted by Afolabi
Imoukhuede, Managing Consultant, MCS
Consulting Limited Ikoyi, Lagos
aimoukhuede@mcsworldgrp.com
Impact of Culture
on Mergers & Acquisitions (Pt.1)
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