In M&A, it is best to execute quickly but for 1 critical workstream
Assimilate, don’t just integrate
I believe M&A deals focus on successful integration but not complete assimilation. Let me explain.
Synonyms for integration include assimilation but also addition and combination.
Synonyms for assimilation include integration but also the words absorption and adaptation and incorporation and adjustment and acclimatization. Those are juicy words that go way beyond the meaning of integration.
The idea of adding two companies together, or combining two companies, does not invoke the visceral reaction that absorption and adaptation do, in my opinion.
Research says that M&A’s often fail. But what do they fail at exactly? Who defines success or failure? Do they fail at legally combining two companies – or whatever legal deal structure they intended? Not typically. Do they fail at achieving synergies? Probably often. Do they fail at integration? That depends on whether the goal is to add / combine or to adapt / acclimatize. I would imagine the real goal is capturing sustained value. It is hard to prove though since less than 45% carry out formal post-deal reviews – so how can they truly know?
What about success or failure from the employee’s point of view? If you queried the employees post integration, they would likely mark the deal as a failure or, at least not successful yet.
According to American University, 59% of M&A deals failed to add value after three years and the average return was negative 17%. 83% of the deals failed to increase shareholder value according to KPMG. And 90% of business leaders involved in major acquisitions said their deals failed to achieve their original objectives per the Hay Group and La Sorbonne.
M&A integration is messy and risky and chaotic. The experts agree that a good plan and an experienced, appropriately staffed team can execute core integration workstreams quickly and efficiently. What takes longer, much longer yet delivers THE value of the deal, is true culture change. The typical workstreams in the Integration Management Office (IMO) include Legal, Human Resources, IT, Sales, and Marketing. But if most deals target either transformation or absorption or the best of both or even autonomy, we must deliver beyond the nuts and bolts of integration or what I refer to as the foundational plumbing. Of course, we must get employees onto one email and pay system and into one knowledge base and on the same benefits. We must simplify the IT application architecture and protect the brand and prepare the sales teams with the ability to cross-sell new products and services.
But we rarely go beyond those basic infrastructure necessities – those activities are critical yet don’t drive long term value.
Culture and performance are linked
Culture is broadly defined as the shared attitudes, behavioral patterns, and values that cohesive human groups pass on from one generation to the next.
In the case of a larger established company buying a start up company, you might be looking at a scenario where the future company needs to reconcile:
Agility without sacrificing robustness
Creativity without foregoing consistency
Agency without endangering outcomes
Speed without losing sight of purpose
In the same KPMG research paper cited above, we learn that deals were 26% more likely than average to be successful if they focused on resolving cultural issues, and those acquirers who left cultural issues until the post-deal period severely hindered their chance of deal success compared with those who dealt with them early in the process.
What if we invested in the Organization Change Management and Culture Assimilation Workstream from Day 1 until we achieved predefined targets that prove: absorption and adaptation and incorporation and adjustment and acclimatization? This means the workstream remains, in some capacity, for a period of 12 – 18 months beyond the formal IMO with the objective of capturing sustained value.
It is common to assign culture to the HR workstream. It is also common to include leaders from both companies to serve on the team to address culture risks and opportunities. IMO’s often conduct culture assessments to uncover significant culture and operational risks to closing the deal, but not looking beyond that.
That just isn’t enough if you want to avoid long-term issues with low morale, high undesirable attrition, inefficient or ineffective ways of working and employees who lose their sense of belonging in the new company.
There is a popular phrase that emphasizes the importance of investing in the culture workstream: If we don’t do a good job of managing our culture, the culture will do a poor job of managing us (potentially adapted from Business theorist and psychologist Edgar Schein’s quote).
I say, we are not ‘completing’ the deals. We stand down the Integration Management Office and turn over the reins too soon. When the wounds are still raw, and the shock has not worn off, the work stream leads return to business as usual. We fall short of achieving objectives because we pull the plug too soon.
Employees love being well-led. So, let’s deliver for them and make sure we finish what we started.
