Mergers and Acquisition: Avoiding the Little Foxes

Question: Would we see more mergers and acquisitions (M&As) as the days go by, and as the wind of change blows over Nigeria?
My answer? Yes! As our security challenge abates and corruption stems, we would see more inward flow of capital and investments. This would likely be bolstered by the fact that economic growth is low in Europe and many parts of the world. Also, as more international brands emigrate into the country to take advantage of the presence of disposable funds from the growing middle class, we would see more M&As between local firms as they try to increase their scale and operations.

In a bid to strengthen organisations and safeguard the economy, we should see regulatory agencies/policies encouraging local firms to merge. We will likely have various starting points but the same end – either a merger or an acquisition. Rarely do we forget the big issues, but it’s the little issues that get passed on or handled lightly or wrongly. Remember it’s the little foxes that spoil the vine. Let’s review and avoid some of these not-so-little foxes.

We are so different!
It is amazing that organisations can serve in the same industry and yet be so different from each other. And this difference remains one of the major challenges to successful integration of organisations. Too many studies on mergers and acquisitions have highlighted incompatibility of cultures as a major roadblock to M&A success. In the final analysis, organisations are a composite of upheld values and beliefs. These values/beliefs direct behavior and these behaviors are seen in interactions with customers and stakeholders. They are even evident in the way employees talk and dress. It shows up in supposedly mundane things such as arrangement of tables, use of first names, etc. It is the combination of all these that is referred to as organizational culture.

This culture problem is largely solved or created at the planning table. It is at this point that we should have conducted a preliminary culture analysis to determine if the targeted company is worth the acquisition or merger. Once culture incompatibility is observed, the degree of incompatibility should be determined; cost and length of acculturation (culture fusion) identified and, finally, a Culture Integration Plan (CIP) drawn up.

“But we didn’t do all of this in our own case”, so says someone. Is there a remedial path? Even though an MOU has been signed and a merger is now ‘in formation’, go ahead and conduct a Culture Due Diligence. Be clear on the constituent culture traits of each consolidating partner. Identify differences – fundamental and superficial. Then, as part of the transition and integration plans, develop a CIP. A CIP is only useful to the extent that it contains the mechanism(s) for culture integration; time frame; external and internal facilitators; success parameters; key success indicators and attendant cost.

Who are these people?
Determining who will be part of the core integration team represents a major challenge that executive management and human resources must grapple with. It is wrong for staff to consider this team an elitist group and thereby lobby to be part of it. Of course, we are firmly on the path to failure when the executive team begins to select on partisan grounds. Not everybody is well placed to be an integration manager. An integration team should comprise external consultants and carefully chosen staff from the merging entities. Because of the humongous work associated with M&A integration, it is almost compulsory to use consultants. Another justification for consultants is the required skill-set and the amount of objectivity and soul-searching needed.

Another headache for executive management and human resources is, “Which kinds of consultants do we need”? Over the years, there has been agreement on the need for business/financial consultants. But after a series of M&A failures, the critical role of specialist Human Resources consultants has come to front burner. Is this requirement a nice to have or a need to have? Most of the reasons generally adduced for M&A mis-marriages are people issues. E.g. Incompatible cultures, loss of key talent, clash of management styles, absence of HR at planning phase, etc. Having a specialist HR consulting firm as part of the integration team is therefore critical.

Will they go or will they stay?
Retaining top talent is a major challenge for most businesses under any circumstance. Retaining key talent while coping with the organizational upheaval wrought by a merger or acquisition increases that challenge exponentially. This is a major headache for two reasons. Your people are your business. An organisation’s ability to deliver premium results is dependent on having ‘magic people’. Secondly, since business is largely relational, when people leave, customers and other employees go with them.

The key to resolving this lies largely in preparing for it at the planning table. People tend to leave more from the company being acquired, so steps must be taken to identify and retain them.

You will do well to conduct a Talent Audit. The gains of this kind of audit is phenomenal if it is planned and executed before or during due diligence stage. In the wake of any merger or acquisition, specific retention strategies must be employed. And for these strategies to succeed, they must be based on extensive organizational research conducted well in advance of the transaction’s close. Planning focused on identifying and retaining the critical human assets being acquired begins in the earliest phases of the acquisition planning.

How do we tell them?
Because most M&As aim to maximize corporate resources, role restructuring is sometimes inevitable, or some people must be told to leave. The issue of separation is one of the unpleasant responsibilities of the integration team. How do we manage it? How should it be communicated and implemented so it doesn’t become bad publicity? What will it cost – financially, emotionally, loss in lead time, etc? Again we need a good plan. Let the integration team do a PowerPoint presentation of the separation mechanism to be employed including cost implications; specifically highlighting the ‘moments of truth’; communication strategy and strategic efforts aimed at helping the affected employees mitigate the impact of the separation. This is easier said than done. During M&As, you cannot over-communicate (though you can!). Ensure clear and regular communication platforms are opened using technology and face-to-face means.

Who will look after the honeycomb?
To achieve the objectives of the merger/acquisition, a new business model is usually a requirement. Sometimes whole new business units are carved out so as to cash in on the gains expected. The throbbing questions include, “Who will man the specific strategic business groups”? Who are the magic people that we require at the helms of certain special business units?

The relative importance of a business unit is dependent on company strategy and an understanding of the industry and evolving trends. Making this choice can be arduous, tasking the ability of executive/integration teams to distance themselves from partisan tendencies. It is important to always remember that the effect of poor recruiting or placement is far reaching. It stifles creativity and innovation; it sponsors mediocrity and puts a bar on the potentials of the team.

The rule is, “let the best man do it – even if that person is from the acquired organisation.” And remember, the best man is the one who not only has the skill-set, but also possesses the leadership ability to carry more people along; he should thus be the one who has the potential of bringing maximum gain to the merged organisation’s objectives for the merger.
This troublesome process.

Information Technology has somehow over the years taken up a central role in the business world. IT has now become the hub of business. Therefore, integration of organizations will be the integration of IT. This is a headache of migraine proportions. It is enough reason not to acquire a company. There again needs to be a well thought out plan for this. Identify differences in technologies. Be clear on the customer-focused adaptabilities required. Be courageous enough to discard obsolete but expensive existing platforms. Considering the investment that has already been made into IT and the focal point that it represents, a proper due diligence is a minimum requirement.

Who will become Executive Director?
Apart from the need to place people in strategic positions, there’s a twin challenge that also has the potential to ruin the best integration efforts. I call it ‘Who will become Executive Director’ because that phrase helps capture the nature and dimension of the challenge. M&As naturally result in bigger organisations and this automatically brings a need for executive and senior management restructuring. Coming with the restructuring is the issue of executive compensation. I mean, how are we to handle the person who was the MD in a small concern who now becomes the ED in a merged entity? How will his remuneration now be computed? This is not to mention the new management nominees from new power blocs.

What will this thing cost?
There are costs to every merger/acquisition; even the marriage of individuals gulps money. How much will our own integration cost? What are the cost elements? How do we achieve cost savings? What is the nature of these costs – are they one-off? Possible cash elements are severance payouts to exiting staff, share price related payouts, cost of IT integration, consultants fees that won’t be borne by CBN, whole re-branding efforts, etc. Other non-cash payouts are emotional loss of staff, stress of the whole process, customer relationship strain, etc.

Whither goes the Mother Hen?
Customers, for a myriad of reasons, aren’t comfortable with the turbulence associated with M&As. Customers and suppliers will ask questions. What will happen to my money or contracts? What will happen to my investments? What would be the fate of the personalised facilities that regularly come my way? It is important that we also have a Branding and Communication plan. Communication with customers must be clear, consistent and regular. Added to that is a plan for managing customers and requests during the integration.

Finally
Certainly this list isn’t exhaustive. By this, I mean, no one should assume that there aren’t surgery-level problems as merging entities pry unhindered into another company’s financial books, finding out what we have always known – that the declared assets/liabilities may not match up to reality. Though the integration of two entities will be arduous, it is to be expected, and the success will depend on the willingness of the power blocs to see it through. This translates to the willingness to heed early, the little foxes that spoil the vine.