THINKING

Mergers and Acquisitions – Clash, Conquest or Convergence?

‘Anyone who has actually lived through a merger knows these are gruesome and traumatic experiences.’

Margaret Heffernan[1]

From 2012 to 2017, the total value of mergers and acquisitions worldwide exceeded $27 trillion.[2] Obviously there is a perceived benefit to bringing two different organisations together.

Yet for anyone contemplating a merger or acquisition, the statistics can be daunting. KPMG says that “only about one third of mergers, acquisitions and takeovers add value”.[3]

The reasons for failure include lack of due diligence, negotiations errors, external factors, limited “owner” involvement, and unforeseen costs.[4] But, according to a recent survey of  M&A professionals conducted by McKinsey, 92% of respondents said that their deals would have “substantially benefitted from greater cultural understanding prior to the merger” and 72% said that “too little effort’ was focussed on planning for the integration of two separate brands and cultures[5] – the integration of ideologies.

Ideology is due diligence

Consider two companies doing the merger dance. The reasons for combining might include perceived synergies, or acquiring or blending technologies, systems, customers, real estate or even financial strengths.

The focus is all too often on the financials, the market share gains, operational efficiencies or general cost savings.

Insufficient attention is paid to whether the ideologies of the two firms (their purpose, beliefs and visions) can be successfully brought together.

Insufficient attention is paid to whether the ideologies of the two firms can be successfully brought together.

Imagine a highly successful technology-based company being bought out by a service-based, customer-oriented organisation. Here you have two very different approaches to almost every facet of business, being thrown together. The culture shock on both sides could be significant and could well cause a fracture in the merged organisation with people pulling in different directions, making it almost impossible to realise the synergies promised before the merger.

Defining the ideologies of both parties, considering how they can and should be unified, and formulating a wide-ranging systems and cultural integration exercise and, consequently, a revised customer engagement and acquisition program, will be crucial to the success of the merger. It’s not the only factor, of course, but it is one of the most significant – and often the most under-rated.

Asking questions

Because, in most cases, the merger or acquisition will be systems, asset or financially driven, the question of how the differing – and often competing – ideologies will be integrated only comes up later, once the cracks have started to emerge.

But before you even contemplate going ahead, you should ask a few basic questions:

  1. Do the two organisation’s ideologies complement, compete, oppose or negate each other?
  2. How will the two ideologies be unified? Possible answers include:
    • The dominant ideology (most often that of the acquirer) will assimilate that of the other company. In this case, the program needs to concentrate on educating and enrolling unfamiliar personnel into the dominant ideology.
    • There will be an integration of the two. Clearly there will need to be common ground between the two ideologies for this to happen, and without careful planning and implementation the result could be a bastardisation of both ideologies, negatively impacting the brand.
    • The intention is to bring the two cultures together and forge an entirely new ideology based on the synergies, the newfound strengths and the vision of the enlarged group. This admirable ambition will require a great deal of input from the highest levels of management, and a willingness to stay the path. You need to be sure that the chosen path is the right one.
  3. What are the other contributing factors in combining the two groups – are there a lot of mechanical and systems based mergers going on at the same time? How will this affect the cultural integration?

The answer to these questions will help you determine whether or not the process will be smooth and successful, or “gruesome and traumatic”.

Getting answers

There’s no easy way to define and compare the two ideologies involved in the transaction, particularly if the question of “what drives us, and why do we do it the way we do?” has not been asked of one or both of the participating entities.

The place to start is at the beginning – defining the existing ideologies of both parties, and planning how to achieve the desired ideological and brand outcomes.

Define the existing ideologies of both parties, and plan how to achieve the desired brand outcomes.

The process should be managed by the top echelon of decision makers in the business, and will require time, effort and resources, all of which should be accounted for in the potential costs of the merger.

Practical measures may include workshops, interviews, process analyses and more – see Bain & Company’s excellent article ‘Integrating cultures after a merger’ for ideas.

It’s worth considering the aid of an independent, objective professional who understands the role of ideology in shaping the internal culture, the brand and the customer experience. Someone who can facilitate workshops, conduct interviews, knowledgably analyse systems and processes, prescribe outcomes, shape the formulation of the final ideology and ensure it’s firmly embedded within the new entity.

At the end of the day, it’s something you can choose to control or not but, given the overwhelming evidence in favour of its importance, you’d be a braver person than I to leave it to chance.

 

 


ABOUT IDEOLOGY

We are a creative management consultancy that brings together business strategy, brand and culture to create meaningful relationships. 

We work with ambitious B2B leaders to drive transformation and accelerate growth by unlocking competitive advantage within their businesses. We get to the heart of an organisation’s unique reason for being, its ideology, and build the brand from the inside-out by embedding it in the culture and in every customer experience.

We are part of the DIA group, a leading Asia-Pacific brand consultancy with offices in Australia, Singapore, Malaysia and Indonesia.


[1] https://www.cbsnews.com/news/why-mergers-fail/
[2] https://www.statista.com/statistics/267369/volume-of-mergers-and-acquisitions-worldwide/
[3] https://home.kpmg.com/ca/en/home/insights/2017/01/why-most-acquisitions-fail.html
[4] https://www.investopedia.com/articles/investing/111014/top-reasons-why-ma-deals-fail.asp
[5] https://www.mckinsey.com/business-functions/organization/our-insights/a-mckinsey-perspective-on-the-opportunities-and-challenges
Colin Mackay-Coghill
Posted by Colin Mackay-Coghill
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