“Merging and acquiring companies destroys shareholder value. It is as simple as that.”
Mark Sirower, Former Chairman, Goldman Sachs
What’s the Point? The overriding problem with the vast majority of M&As – even after thousands have been made – are that most M&As fail, by 50%, 65%, 73.374%…..whatever number it’s not a good batting average and it adds up to trillions of dollars in lost value. Yet the reasons for their failure are many, disastrously obvious and surprisingly easy to avoid.
The purpose of paper is to stimulate your thinking about the issues. Demonstrate how brand based transformation can drive top line growth & internal integration. Explore possibilities to ensure M&A success. Finally illustrate how the strengths of The Dean Crutchfield Company helps you achieve growth by tailoring brand-led techniques that are uniquely participant centered to guarantee results. Whether it’s a merger that requires a believable strategy that can translate across the business, or better internal understanding, encouragement, winning new mandates, ambition planning or a better communications platform, you will find our fee in your success within weeks.
There are two key factors that preempt an M&A failure. First, lack of long term integration management tends to be the big killer that leads directly to losing momentum in the business.
Secondly, post deal communication is not handled well. This is often caused by the differences between the heady aspirations of the deal team on Friday afternoon and the fact there’s still business to be done on Monday morning.
The soft side is the most neglected as it’s ignorantly believed by so many not to be that vital in the deal making process and consequentally management find out to much to their chagrin that culture, problems of retaining key personnel and cross state M&As clashes as a result of pay conditions, pensions, become rife.
Remember – there are no mergers of equals. The obvious truth is that management’s in a hurry to grow and complete integration is necessary to typically:
- Cut costs
- Combine back office systems
- Release synergies
- Merge sales forces
- Blend product lines, etc.
In these scenarios the enterprise that has the strongest culture & practice will dominate! It’s as simple as that and obvious examples like Coca-Cola, GE, IBM, Google reign supreme.
There are two determinates of value creation. The first is how tight the ship is run and typically the successful ‘acquirer’ are those with a history of cost control and productivity. In this scenario the ‘acquirers’ culture will be the more successful in directing and getting the most out of the deal. The second is the closeness of relationships inside and outside the business. In M&A, soft is hard and the closeness of relationships with employees, customers, suppliers, partners is crucial. The business that has the deepest rules wins and the challenge is to embed the benefits of their
knowledge/approach. Brand architecture plays a huge role here: is it to be logos, labels, layers and lawyers or worlds shared by employees and customers?
Reasons For Failure: Internal
1. Tough keeping business performing when everyone’s attention and concerns are projected on outcomes and the potential fall out at a personal and professional level whilst managing the acquisition.
2. Not addressing victor & vanquished attitudes. It’s surprising to learn that most companies end up spenting most of their energy on the vanquished. A natural reaction given the anguish that the process causes on scared employees.
3. Loss of momentum caused by the attention on the M&A and the fiefdoms mindful to button down the hatches
4. Leadership struggles (diverting/devisive). From the tea lady up, who is going to be the boss? These traumatic struggles are not just happening in unknown corporations. They have been made famous in major corporations like Gary Wendt and his abrupt departure from GE.
5. Inability of managers to lead the people through the transition. To be a leader you need to know how to follow, but if the guardrails aren’t there, you find your self staggering in the wrong direction. An email ain’t going to cut it. How can you leverage and orchestrate knowledge inside and across the business?
6. Do as I say, not as I do is a key part of the aforementioned. A lack of role models leads to confusion, distraction and poor performance and a lot of resumes spinning around!
7. Internal opposition to new ways of working is an obvious hurdle and there is no magic wand. That said, the more inclusive the communications can be on what’s the strategy and how it’s going to unveil itself over the coming weeks/months is critical. At these early stages it is recommended to create an interim brand for the integration that can act as a rallying cry.
8. Resistance to the new structure. Small company or large, any M&A activity attracts resistance from both outside and inside the company. New structure often means big changes at the senior management level.
9. Not engaging the workforce, fear of job losses. This is when the need to have senior contact program running across the enterprise is called for; identifying people in the merged busineses that need to share information in the hope you can build some bridges and discover new opportunities for the merged entity.
10. Not addressing conflict and culture issues. This is about separating appetites from the real requirements of what needs to be done and being clear in your communications how you expect the company to behave. That’s just the internal needs.
Reasons For Failure: External
1. Market share does not grow.
2. Confused brand identity. Working with GE’s Masterbrand architecture we found over 11000names, brands, products, services and entities that encompassed it’s 12 divisions with a brand architecture that was up to 25 layers deep in some of its businesses – some you didn’t know were GE! That’s a lot of money being spent maintaining things that shouldn’t be. Time for open heart surgery and there will be a scar.
3. Publicized promise is difficult to match on the inside. At the turn of the century Coca-Cola realized it was speaking with two mouths. One to its analysts about the huge 20% savings it was looking to make in operational efficiency and staff reduction whilst simultaneously, HR was communicating to staff how important they were.
4. Regulators (can) both hinder and help process. Do we want two banks, two airlines, etc? No, so regulation is good. Then there’s the other side where regulation is an imbroglio.
5. Existing customers/suppliers no longer remain loyal. Druckers ‘Force 5’ explains this conundrum as rivalry dominates conversations, the power of customers in the category, suppliers, new entrants
6. Shareholders doubt acquisition strategy: shareholder return is an action not a strategy.
7. How do you manage the absorption of the acquired brand(s) with its own values – operationally and culturally into one ‘family’?….or not? And if so, how should you manage it?
8. What is the best transition strategy and how are both brand’s affinity and performance being calculated, e.g., how do you absorb the acquired business/brand into your house style? And if so, how should you manage it? Do you permit the business to keep its name under a new holding company ‘group’ concept?
9. Do you manage the M&A as a transitional process, with an initial focus on product marketing and brand rationalization?
10. Do you communicate other dimensions to the added value of the deal beyond simply increasing size, scope and resources?
M&A The Right Way
A Profitable Capital Management Program: Internal
1. Do not over reassure internal audiences by saying there will not be significant changes
2. Ensure regular and frequent communication using both face to face methods (for effectiveness) and digital methods (for timeliness)
3. Focus on survivors not on leavers
4. Do not pretend it is business as usual
5. Explain the business rational for the transaction (and repeat)
6. Do not approach integration as a phase, but as an on-going process
A Profitable Capital Management Program: External
7. Be clear about the future and create a sense of direction (and brand it)
8. Do not be afraid to state that you do not have all the answers
9. Manage external and internal communications together
10. Have a communication (and integration) plan in place before signing the deal, which includes:
- Audiences (including unions and work councils)
- Key messages
- Activities and materials
- Approvals process
However, Transformation does not occur simply through somebody in a suit standing up announcing it. There must be a vision. Moreover, it has to amount to more than a few well chosen words. Here’s a check list that will assure you a more effective program:
- Contact program between management
- Key messages – internal and external
- External consultants – who, why and what
- Interim communication branding
- Integration tools
- Integration of communication terms
- Identify new vision, mission and culture
- Plan identity and communication strategy
- Reporting news – internally and externally
- Communication needs for transformation
- Process for feedback
In summary, energy and focus should be placed in 5 key areas:
- Announcements and pre completion
- Early post completion