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Merging or Acquiring?

Merging or Acquiring

Get your culture right!

Earlier this year, one of our clients made what seemed at first glance to be a counterintuitive decision. They decided not to acquire a company that on the surface was an ideal addition to their business. As a leading international player in the resource transformation business, they were looking for an upstream provider of mineral resources, particularly natural gas. The company they found was a medium-sized producer of natural gas with an excellent reputation for product quality and client service.

The problem was that the target company was too good! The points of excellence that concerned our client were not to do with product quality and service, but with the progressive, constructive nature of the target’s organizational culture. It was no accident that the target company was considered a leader in its field. It was known for innovation, in a sector often associated with conventional business approaches. It was squeakyclean in its reputation for ethical business practices. It systematically looked for autonomous self-starters in its hiring practices at all levels, management and nonmanagement. Its talent management was centered around continuous employee development and the feedback and reward and recognition systems were simple, fair and effective. So, what was the problem?

Our client’s Board felt that their own company’s culture was not going to facilitate the success of the acquisition. They pointed to their disappointing record of previous acquisitions, none of which had given the expected results and several of which had been outright failures. Their acquisition strategies were mostly based on aggressive approaches focused on demanding short-term results and they showed little concern for the employees involved in either company, their own or the company being acquired. These strategies resulted in the most significant cause of their failure to integrate the new company, the loss of human capital. Key people simply left, leaving systems and equipment that the remaining employees neither fully understood, nor were motivated to learn how to use effectively.

So the Board decided to initiate two new strategies, one focused on the long term and the other on the short- to medium-term. The long-term strategy was to measure and then to change and improve the overall company culture to make it much more constructive and reduce its emphasis on aggressive leadership styles. This is now ongoing and will certainly last a minimum of seven years to be successful. The short- to medium-term strategy was to overhaul its approach to its M and A process, especially the phase of integration.

The four key aspects of their new M & A process can be summarized as follows:

Be humble:

the employees at all levels in the acquired company have to be reassured that they are valued and needed in the organization they are joining. Their senior managers may be invited to help shake up and improve business practices in the acquiring company.

Be flexible and patient:

many successful acquisitions are characterized by the acquiring company “staying in the weeds” and avoiding any rapid moves before it fully understands the strengths present in the company it has acquired . The areas of synergies with the parent company may not become apparent for as long as a year or two. In a recent acquisition I was involved with, the acquiring company made minimal changes at the time of acquiring their new business and, after three years, decided to permanently keep their hands-off strategy. The only obligation the new business has is to perform well within the key values of its parent. How it achieves that is entirely up to the acquired company itself.

Treat people equally well:

one of the most successful acquisitions I was involved with was characterized by all new positions being openly posted to qualified employees from both organizations and criteria being developed to ensure that it was obvious to all concerned that the best candidate had been selected, with no hint of bias towards candidates from the acquiring company. Mergers and acquisitions almost always entail some positions being eliminated. It’s important that every effort is transparently made to relocate employees elsewhere in the organization and, where this is not possible, that exit packages are fair and generous.

Focus on quality:

quality results from contributors at all levels being given high levels of autonomy to make their own day-to-day decisions. Whether employees are working with the acquiring or the acquired company, the reward system will encourage selfstarters and team players. Everybody is equally encouraged to challenge and suggest improvements to how business is done across the newly-enlarged organization and progress and good news are quickly communicated. The performance management system is designed to deliver continuous improvement, especially over the long term.

Right now, my client has resumed its search for interesting companies to target for acquisition. It has a revamped approach and a reorganized division focused on growing the business through its improved M & A methodology. It is also committed to the longer-term goal of real culture change. This is a parallel effort that will reinforce its capacity to grow both organically and through successful mergers and acquisitions.

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