Written by Manon Albertz
Summary: M&A transactions have a very high failure rate. Mainly due to failing to integrate the two parties involved. To achieve success, it's important to drop the P in Post-Merger Integration and consider integration as a holistic process. Ideally starting when formulating the strategic rationale of a transaction. We’ve seen that top performers prioritize merger integration projects and follow BrightWolves’ six principles for successful integration. Today, we’ll dive into the fourth principle: culture.
What is culture and why is it crucial to land a successful PMI?
What we’ve seen over the last 5 years in doing merger integrations is that one of the critical success factors for a smooth integration is having a cultural fit. There are plenty of large historical deals failed destroying billions of euros in shareholder value due to not considering or underestimating the power of the cultural aspect of the integration process.
But what is culture? Company culture is about the shared beliefs, values and behavior within the company, you may call it the DNA of a company or simply “the way things are done here”. It’s the key driver within a company of all its employees’ performance, motivation, their level of proactiveness and efficiency. Therefore, it should be factored into the decision-making process of the integration and be incorporated into the project methodology and target operating model.
How can cultural differences affect the success rate of the PMI process?
When creating the business case for an M&A project, the word “synergies” will often pop up. It’s something that gets factored into the initial business case to justify the need for M&A in the first place. However, often after the integration the realization of these synergies does not run as smoothly as foreseen. They are often undertracked, and another main root cause is the lack of collaboration between the newly merged employees due to different mindsets that are still linked to their initial corporate culture instead of the Newco. How to avoid falling into this trap?
How to deal with the impact of culture throughout the PMI process?
At BrightWolves, we learned there are 4 important steps on how to deal with company cultures and its differences during the PMI process:
Figure 1 - 4 steps to deal with company culture during the PMI process
1. Make culture explicit through self-assessments.
Corporate culture can be summarized by 3 categories:
Artifacts: the visible aspects that are easily controlled by management, such as, the format of a company meeting, the naming of meeting rooms, company interior, the frequency of coffee breaks,…
Shared values: the combination of the individual values of the employees and how these are reflected when working together as a group in the organization.
Shared assumptions: subtle aspects that are hard to grasp and to change, such as the walking pace in the office, the email frequency flow, desired ideals,…
Gathering insights on these 3 categories can be done by means of surveys sent out to and filled in by the different teams and employees to identify the current and desired company culture values.
All the datapoints of the surveys should be aggregated and plotted on a cultural self-assessment to:
Define the current culture values. This helps visualize the current similarities and differences of the companies involved and can support the creation of a common language and understanding of how things are perceived in both companies.
Define the desired culture values to determine the necessary value jumps that ought to be made within the Newco. This can apply to areas such as decision-making, leadership, risk, responsibilities, teams, and employer branding.
Figure 2 - Culture self-assessment
2. Merging teams, tackling the cultural levers to reach 1+1 > 2
Out of the self-assessments, you will come to know the differences between the two companies. Incorporating these cultural differences into the project methodology and target operating model is essential to create one powerful, “best of both worlds” culture which supports the purpose of the Newco. It also increases the probability of creating synergies and reaching the 1+1 > 2 since employees are more likely to adopt the mindset of the Newco instead of thinking like 2 separate companies. What are important value jumps that need to be taken?
Figure 3 - Values and Value Jumps
3. Identify change agents to drive viral change
Since it’s in our human nature to be reluctant to change, it’s absolutely normal at the start that this “we” versus “they” view still exists. This type of fragmentation should be dealt with right away since the longer the “us against them” view exists, the more employees can become frustrated, feel disengaged and in the end a higher-than-normal loss of critical employees will occur.
To avoid lingering on too long with these opposing mindsets, it’s important to empower employees within the broader teams to voice concerns and share ideas. This will not only help the leadership to identify and resolve cultural issues faster but will also help employees to feel more engaged.
To do so, it’s essential to assign change agents. These should be a mix of both companies, different departments and people with different roles and responsibilities. So that all teams and layers are well represented.
4. Track and celebrate progress
Rome wasn’t built in a day and the successful integration of the newly merged companies won’t be either. It's highly likely that the initial integration plan will need iterations. In that case, some small tweaks within the departments on the new common culture can help the process. For example, some traits of group A can reduce friction in a certain department, while certain traits of group B may be better suited for another department. In this way these small adjustments can reduce friction within the newly formed departments and increase stakeholder happiness.
Do not forget then to celebrate milestones early on. Celebrating progress is essential for maintaining motivation, fostering teamwork, promoting well-being, and inspiring continued growth and improvement. It not only recognizes achievements but also provides valuable opportunities for reflection and evaluation, ultimately contributing to long-term success.
In essence, by following the 4 steps above we have set up our clients on the road to merger success.
Next week, we’ll dive into our fifth principle, Communication.
See you then!
Need help setting up your M&A for success? BrightWolves offers consulting services along the full M&A spectrum: ranging from helping to define your M&A strategy, to target screening & selection, commercial due diligence, deal closing and post-merger integration. Do not hesitate to reach out to our expert, Joris Vanthienen and Miguel Van Damme