|
Corporate mergers or acquisitions are normally
justified as being conducted to maximize opportunities
and synergies to seek optimization of shareholder
value. Experience has shown that in the conduct
of the M&A activity, determining nature of
existing culture at each prospecting merger company
and whether there is likely to be good chemistry
between them if they join forces is the most complex
factor to assess yet it
is most crucial to the long term success of the
transaction.
Frankly, anyone with decent accounting and investment
knowledge can crunch numbers to develop a valuation.
The true test of a “good deal” is
not the money part of it; it is whether the companies
are better together than apart, a year or two
down the road.
The following are seven factors
that can be examined to develop a sense of the
deal, to see whether there might be good (or bad)
chemistry between the prospecting merger companies:
1.
PERSONALITY OF THE ORGANISM
Companies like other organisms have a persona
which is largely referred to in business language
as the corporate culture.
This ranges from quiet companies to companies
that make a lot of noise and bluster; companies
that see their employees as their most
important asset and others that see them
as necessary evils because you
cant yet teach computers to do it all. Once you
figure out which categories each of the companies
fit in, it’s easier to predict when there
is going to be bad chemistry.
2.
SYNERGY
This has GOT to be the most overused word in the
M&A lexicon, kind of like “love”
between two people dating. It means dovetailing
strengths and capabilities, a situation in which
each of the companies brings to the “marriage”
assets or advantages that the other seeks or needs
to prosper. When this synergy truly exists, it
can be one of the foundations of a great marriage.
3.
MANAGEMENT STYLE
Someone once said, that even with the very largest,
most diversified companies on Wall Street, look
at the Founder/CEO, and nine times out of ten,
you’ll see the essential character of the
company. In other words, a company is careful,
prudent, and rational if its CEO is. It holds
uppermost the welfare of its smallest shareholders
if the CEO knows he’s actually working for
them, or the company chooses to enrich the few
guys at the top, at the shareholders expense,
if the CEO is simply greedy. Therefore, if you
examine the CEO of the prospecting merger companies
and you see Balogun Market vs. Wall Street, or
conscientious vs. cutthroat, you’ve almost
surely got bad chemistry on its way, no matter
how great the "synergy".
4.
RESPECT
When two companies unite, you often have two of
lots of disciplines. If, in the very beginning
of the relationship, they can all be convinced
that, while different, each side’s teams
did things REALLY WELL, then there (sometimes)
can be fostered an approach of "…we
respect the value you built in your company, so
we want to learn from you to make us better".
Most often, of course, there already exists a
feeling that "none of our competitors does
it as well as we do", so inevitably, what
remains when the transaction dust settles is an
"us vs. them" environment.
Before long, the more politically powerful team
starts to submerge the other side’s technology,
service ethic, and customer service. Too often,
the wrong side wins.
5.
PERSPECTIVE
If the two management teams don’t have similar
focus, goals, and outcomes in mind, one of them
will end up disenfranchised and soon thereafter,
gone.
6.
COMMUNICATION
This is where the intersection of upper management
and the employees can be most "out of synch".
A company that’s had a tradition of full
and open information flow, from management to
the ranks and back, operates more like a family
and engenders a team spirit, a general feeling
that "it’s OUR responsibility".
In too many corporate structures, individual performance
is stressed, there’s limited information
flow (often due to confidentiality issues), team
competitiveness (between operating divisions or
locations), and generally a feeling of "it’s
THEIR responsibility". The difference between
the two has mostly to do with communication style,
less to do with management structure. When a company
with one tradition marries a company with the
other, it can be like trying to live with someone
who speaks only Greek.
7.
FOCUS
We’ve probably all seen Company ABC
that was simply a sales machine: they had the
pitch down pat, the sales team hyped; the dog-and-pony
show rehearsed, slideshow at-the-ready, and could
bring in the business at a blistering pace. Then
you may have seen Company XYZ
that’s grown over the years largely by referral
and word-of-mouth, not too flashy but really gets
to know its customers, and is always on stand-by,
ready to answer any call for help. Then there’s
Company ZYZ; it’s
technically superior, has whiz-bang computer systems
and state-of-the-art automation, and sells best
to customers who appreciate those things and are
willing to pay for them.
Try merging any two of these different style
companies together, and the senior management
faces a remarkable challenge to blend them without
implosion. However, HALF the challenge is to identify
what yours is and what his is, because if you
can put correct labels on the two companies, you’re
that much closer to a successful integration.
According to Chris Kellogg of Wallingford Capital
Corporation USA, in 104 merger transactions over
19 years of experience, companies that pay attention
to culture (and not lip service)
are always more successful than those that ignore
it. We can therefore safely conclude that those
that work at understanding the impact of differing
cultures on the companies (they attempt to integrate)
can avoid a good bit of the problems associated
with it. Those that deny that corporate
culture will affect profits get that hard lesson
taught to them very quickly. Those that put out
solid and sustained effort to avoid cultural problems
do NOT always succeed. However, employees
ALWAYS know when a company cares enough to try,
and the rewards, while sometimes delayed, do finally
show up.
In conclusion therefore, management teams that
recognize that cultural integration is the single
most important factor governing whether profitability
can be sustained and grown in the companies they
acquire or merge, live long and prosperous lives
while their stock values steadily appreciate.
In fact, you could say, they usually live…
happily ever after.
Submitted by Afolabi
Imoukhuede, Managing Consultant, MCS
Consulting Limited Ikoyi, Lagos
aimoukhuede@mcsworldgrp.com
Impact of Culture
on Mergers & Acquisitions (Pt.2)
[download
article]
|
