Fueled by low interest rates, which are expected to rise, and a growing global economy, mergers and acquisitions in 2015 have already topped $1 trillion. If the trend continues, M&A will top $3.7 trillion this year, making it the second-biggest year in history after 2007.[i]
Despite market and financial analysis, investment, and herculean efforts, researchers find that from 40% to 75% of all mergers and acquisitions fail to achieve their goals. There are host of reasons, including: faulty due diligence, bad strategy, paying too much, business model ambiguity and whole segments of the work force feeling abandoned by the new company.
This disappointing record can be improved upon. Based on my experience working over two decades with mergers, acquisitions and business consolidations, I’ve developed nine key strategies for making mergers and acquisitions successful:
- Articulate a clear vision, business model, and strategies. You want to hit the ground running after the long due diligence and blackout period. You can’t do that unless you clearly and repeatedly articulate your vision, business model and strategies to the affected employees. During periods of tumultuous change, employees need to understand the company’s vision and direction. Provide it to them.
- Proactively reach out to the target company’s key employees and provide mentors and career development. Don’t merely offer retention agreements. Contact key employees in person and inform them of your intention to not only retain them but also provide them challenging work and career development. After the deal has closed, invite them to join communities of interest and assign strong mentors.
- Approach M&A as a major change effort. A merger or acquisition is a major change, not only for the acquired company’s employees, but also for the employees who will manage and participate in the integration. I recommend that you use John Kotter’s eight-step change model to manage this process.
- Over communicate to a fault. Employees want to know if they will still have a job after the M&A. They will also be concerned about changes to their job title, manager, pay, benefits, and previous mentors. During periods of uncertainty, worried individuals fill the gap between understanding and ignorance with rumors. Rumors feed upon each other and create negative attitudes. Get in front of this! Communicate your vision, business model and strategy, and its impact as if you were running an advertising campaign. The secret to successful advertising is that you need to repeat a message at least seven times for it to sink in. Hold town hall meetings. Meet with employees in small groups. Start an internal blog.
- Turn over the big rocks. Find and solve secret problems fast. Even the best due diligence will not detect every major problem within your acquired company. Immediately encourage your new work force to tell you of any problems they see, with impunity. Then, address those issues quickly. You don’t want to have technical, supply chain, customer, accounting, or ethical/legal issues fester undetected.
- Be transparent with bad news. If you have bad news, get it out in the open and then move on. Bad news is worse than uncertainty and deception. If you are not transparent, you will lose the trust of the new work force. For example, if you plan to close a facility or lay off employees, announce it, treat those impacted with respect and dignity, and provide severance benefits and outplacement. How well you treat the employees to be laid-off significantly impacts the morale of the remaining employees. Be sure to engage the remaining employees in your new business model.
- Middle management is key to your success. Leaders of the acquiring company usually spend most of their time after the M&A building relationships with the top leaders of the target company. But those top leaders are often gone within a year, or whenever their retention agreements end, enjoying the spoils of the acquisition. It is critically important to develop great relationships with middle management and key technical talent of the target company as well. They still need jobs. Recently published research by J. Keith Dunbar in the Harvard Business Review(September 2014) found that middle management within your company will be one of the keys to your success, particularly if they have great leadership competencies for building relationships, providing direction, and motivating and influencing others.
- Carefully select integration leaders. According to J. Keith Dunbar’s research, leaders who successfully integrate new acquisitions have the following competencies: motivating and influencing others, building relationships, high integrity, developing others, adaptability, and focus on customer needs. Carefully select integration leaders and team members who have these competencies.
- Culture Fit. The “C” word frightens many leaders – it’s too soft and squishy. But, culture can be translated into strategy, operating norms, goals and measures. This translation is critical for the success of mergers, and it begins with leadership. Explain your corporate culture to the acquired company, not just your policies but also the unwritten rules of what is important for building relationships, gaining influence, planning, budgeting, getting work completed and career development. Always translate your culture back to its impact on strategy, operating norms, goal achievement and measures.
If your company is considering a merger or acquisition, these nine key strategies can help you achieve your goals.
Victor Assad is a strategic human resources consultant and coach who works with key decision makers and human resources leaders on talent management, accelerating change, leadership development, and other strategic initiatives such as mergers and acquisitions, strategy implementation, and flexible workplace. Please e-mail Victor at email@example.com or visit Victor’s website at www.victorhrconsultant.com.
[i] Dana Cimilluca, Dana Mattioli and Shayndi Raice. (April 8, 2015, 8:18 p.m. ET) “Rising Optimism Fuels Deal Rebound. At the current pace, M&A volume for the full year would exceed $3.7 trillion, making it the second-biggest year in history.” The Wall Street Journal.