Mergers and Acquisitions: How to get this trickiest of corporate deals to actually work

Dec 24, 2014 | Commerce, Ideas, Ideas for Strategy, Singapore, TheColumnist, Vietnam

Đọc bản Tiếng Việt

Tweet: Without a plan to succeed post-merger, all ambitions and good intentions for any deal will come to nought

By Helena Pham and Lawrence Chong

The champagne glasses are going chink chink, the consultants who helped to negotiate the deal are getting the slap on the back, everyone’s happy and big money is set to flow or have they? 

When it comes to mergers and acquisitions (M&A), big money is certainly flowing, not to the companies that did the deals but upfront to the consultants involved in the process. In 2012, Goldman Sachs – the leading firm in advising M&A – made a staggering $682 million dollars from M&A deals alone. In 2014, that money flow from M&A to Goldman is expected to boom and the firm is poised to secure 10% of global M&A deal revenue. 

Bottom line is, there is a bucket-load of money involved in the initial process of getting the deal done or the so-called ‘weddings’. The act happens when the two companies can publicly sign a comprehensive deal of who takes what, the structure of the business, and who gets to call the shots and so on. Just like any glitzy wedding, there are lots of consultants involved, public relations, evaluators, advisors, the bankers and so on. 

But in a weird and probably a reflection on how dysfunctional our society has become, few companies have a strategy to make the ‘marriage’ or make the deal last. Even fewer get into a ‘marriage preparation mode’ in the form of working together beforehand to assess each other’s working model and style – probably hard in a few cases because other people might be after the same company so it is best to keep it quiet.

So it is not surprising then to learn from KPMG that 70 percent of M&A deals fail to produce any benefit for shareholders. The report highlighted “people and organisational issues” such as a lack of shared vision, leadership clash, cultural mismatch, loss of key talent, misaligned structures, and poor change management. In short, the companies were generally excited about the wedding but forgot to plan for a life together.

From past experiences, here are some insights:

1) Just one singular purpose and not many

When companies tout the numerous reasons for getting a M&A deal done, it starts to get generic, almost distracting. This is a bad sign because either the temptation of the deal money or the fear of failure is so great so CEOs are often forced to add more and more purposes to the deal to justify it in front of the board. But adding more just increases confusion internally. Just look at what happened to the Publicis and Omnicom attempted merger, there were simply too many purposes and truly, overloaded to sink from the start. 

2) A merger of equals seldom work

When the merger is between 2 organisations that are equally strong and almost similar in size and have many overlaps, it takes a very long time to reconcile as to who gets to lead. And in business when you can’t speak frankly and move quickly on who is going to lead, then you are in trouble. So the ongoing merger between Jurong Consultants and Surbana is going to be interesting.

3) Clear and immediate benefits on competitive advantage

If a M&A is attempted on the basis of overall rise in value without specific understanding of impact on core products or services then it will create confusion both internally and externally. One director once told us “We have not even sorted our own mess and there he (CEO) goes to bring on another (expletive) load of mess.” If the consultants are emphasising a lot of long-term goals for the deal without any specifics on the immediate benefits for competitive advantage, it is a code for: we don’t know. 

M&A is a messy business

Indeed, when it comes to post-merger integration, anyone who has been there, done that, will recall the full-of-uncertainties environment. Change in management team equates to change in management style. This is on top of other changes such as staff composition, operational systems and processes. Most of the time, with almost everyone taking a “wait & see attitude”, the working pace slows down – in some cases almost to a halt – resulting in poor results to realise the goals of the merger.

In the process of advising companies after a major merger (defined as extensive which requires the involvement of almost every department), we have seen that employees all share the following concerns:

  • Potential job loss : Management will usually sing the song that the future will be brighter but few provide specific proposals; thus along with change, comes the uncertainty because common sense dictates that to profit from the synergy, certain functions would be made redundant.
  • Loss of team synergy: As trust and synergy takes time to build up and once lost, is hard to recover, we have seen that mergers of gargantuan sizes affects this element the most, especially when integration fails to take note of how team synergies have an impact on creativity
  • Increased personal stress due to loss of control : The moment merger happens, people enter into a limbo mode as time management starts to get tricky. Organizational changes often increase workloads for employees as they have to get accustomed to new leaders, processes, systems and technologies.
  • Suspended belief in leadership: During any complex merger, employees tend to perceive a threat to their advancement in the organization as more talents are coming on board. So for a while they will suspend their belief and take a wait-and-see attitude before they fully commit themselves.

You’ve got your merger, now make it work.

In the PwC’s 2014 M&A Integration Survey report released by PwC US, it is found that only 50 percent of respondents reported being committed to integration completion over the long term. And from among those polled by PwC, 68 percent of the highest performing deals indicated their companies were completely committed over the long-term, demonstrating that results improve with greater commitment. 

Indeed, having a committed leadership that is also clear about goals is vital to the success of any change, therefore managing change in any M&A deal needs to be led by senior management not just at the deal level but after the deal is done.

We have found the following 3-Cs formula works in any post-merger integration process:

1) Clearly defined goals and outcomes

In order to bring employees together to work, collaborate and deliver the best outcomes, a higher business purpose must be identified that unite both entities. This new purpose must have specific goals for specific competitive advantage so as to define a kind of roadmap for rank and file to understand what is needed to get there. 

2) Clear Leadership

One of the most important aspects is to decide who will be the leaders of change. This needs to be a group of people who can empower and influence people, possess the necessary expertise, has credibility and access to resources. At the same time, it is important to involve everyone in what we call: commitment mapping. A participatory format to ask staff what they think they can do to make this project work. This gives employees a space and role to contribute. 

3) Collaborative Culture

In any organisation, whether in written or unwritten format, there will always be a corporate culture. When two entities merge, the two existing corporate cultures first need to be defined clearly in order to identify the common areas as well as the gaps. And based on the strategic purpose, map out a new corporate culture which will harness best practices from the two existing cultures. We have found that when it is done through a process and in a fair manner, the rank and file will participate and commit to the integration process in a more effective way. 

Helena Pham is the Partner for Consulus Vietnam and Lawrence Chong is the CEO of Consulus

Photo: Forbes – The merger of Publicis and Omnicom


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