Mergers and Acquisitions: The Human Factor
Walt Disney’s acquisition of 21st Century Fox recently closed at USD $84 billion, mergers and acquisitions are a real and frequent part of everyday life. Yet far too often, the real thing falls short of achieving its envisioned goals. With an 80% failure rate of mergers and acquisitions to drive significant corporate value, the key to boosting success rates is in planning for and focusing on the human factors.
Office culture is not often the first thing that pops into mind, but it is important to present your culture properly.
If there is a cultural conflict between how your company is organized and how the target is organized, two months from now, six months from now, when you have consummated the transaction you’re going to end up with – hopefully not a disaster – but most probably a big challenge.
For example, I was leading the M&A team on one acquisition where we went in and right away it was obvious to me that there was a huge conflict between how we were thinking of everything and how they were thinking of it all. It was obvious that they just wanted to sell and walk away.
Now this company was doing about $10M a year when we bought them. And the first full quarter we owned them, they did $1M because it was such a huge conflict. They just could not get onboard with the way we thought about everything. There’s an example of where you can fail simply by not paying attention to the human factor.
The problems can be heightened when doing an international M&A. You must understand the global culture, the nature of business, the nature of people in that foreign jurisdiction. Even when you’re talking to a very limited handful of people you are conveying an impression about yourself. They may decide that you don’t understand their country and they may decide not to sell to you.
But if you show them you understand their needs from a local perspective, from a culture perspective, then as you start to execute on the transaction, things can go much smoother post-closing.
One part of integrating the two companies is the initial conversation with the new employees. The transaction closes today so right away you want to have a company-wide announcement. This way everybody knows what’s going on and there are no rumors flying around.
Now when assimilating, there is the “rip the band-aid off” strategy; but the guy that gets hurt from it will just get up and go. He’s already made up his mind and you cannot change it in the coming weeks and months. On the other hand, if you take a gentler approach then new employees don’t necessarily see you as just those foreigners or buyers who don’t know anything about them.
And whether it’s a 200 person or 10,000 person company, there are some key players you want to retain. As you are going through the M&A cycle of due diligence, you want to identify these rock stars and be prepared to talk to them as and when the earliest opportunity arrives. Don’t just send in some junior HR person, send the CEO or a senior executive to discuss ‘this is why we are buying the company.’
The representative should be able to answer pointed questions as to what, why, when so the employees know this isn’t some hostile takeover, it was planned. Explain what it means for the future of the combined company. Explain what it means for the individual. And explain that they are a select group that has been invited behind closed doors to talk in a more focused session. Because they need to understand what is in it for them in the long haul.
This process allows these rock stars to get the buy-in and influence the attitude of other employees. When you do the big announcement, most people will look at the rock stars – the team lead or best performer – and ask why we are doing this. This isn’t just the CEO giving a pre-written speech, they are getting it first-hand from someone they have worked with for a long time, someone they trust.
Hearing from your coworker carries a lot of weight.
But assimilation is complicated. You want to make sure the target understands your culture, they understand who you are, they can talk to you, and they can reach you. Not just in a formal company meeting with another 200 people in the room – most people won’t ask questions at that point.
A great technique is having a round-table of executives visiting there on a regular basis. You are sending somebody who is a champion of the company. Someone who is convincing these people, showing them commitment to their needs and voices. So gradually, you’re assimilating without making a big deal of assimilation.
But even with the gentler approach, it’s important to have those next day items checked off.
I’ll use the example of Cisco. At one point they were doing one acquisition or more per week. Cisco had it down to a science. They would walk in and hand everyone their new business cards with their Cisco emails and so on. They just had to flip the switches and say now we are routing the emails, and everything is all set up. And that, to the acquiring company indicated ‘wow these guys know what they are doing. They understand our needs. They are catering to us.’ And that allows the employees to get behind the company. You want the rank and file to be supporting the buyer, not just management, because obviously management is supportive – that’s why they are coming over.
Payroll is Key
The most important thing in an acquisition is in fact, that there is no failure in your payroll cycles.
If you forget to bill a Client or ship them their product, they may be upset but you can deal with them. Apologize and fix the problem. Customers will get it. They understand you’re focused on the right thing: the employees, the team.
But as an employee, if I don’t get paid – whether I’m the CEO or the lowest level clerk, I’m not going to keep working here. And in this day and age, there is so much access to social media that can cause massive damage to an employer.
My advice: spend the pre-close 90 days figuring out payroll processes and how you are going to make payroll happen on day 91. Based on your understanding, your research, talking to the payroll team you lay out a plan. Most probably something will fall through the cracks, but at least when you have a plan and bring everyone in the loop, even when things don’t work out, people say ‘hey I’m the one who didn’t get paid, can you please go fix it?’ Yes, here’s a hotline number to call, we will fix it and someone will walk over with a check or we will wire the money. Tell everybody that this is the first payroll under the new regime, please make sure on payday to go into your account, confirm you got paid, and if you didn’t call this number or person.
This article was first published on Co-Founder and CEO Ragu Bhargava’s LinkedIn. Connect with Ragu today.
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