Improve the Chances of a Successful Merger

Improve the Chances of a Successful Merger

thmb_gears_cogs_fit_engage_interlock_mesh_MBCultural Differences Can Make or Break a Combination

If your company is searching for a merger candidate, focus on a company that will support your business’s core direction and produce measurable returns and outcomes.

Taking a strategic focus means emphasizing risk management and ensuring that your due diligence is well directed.

 Categorizing the Risks
After brainstorming possible negative events that could crop up before, during and after a merger or acquisition, it can help to arrange them according to the damage they could cause:

  1. Catastrophic: Scenarios or potential demands from sellers that could kill the transaction before or after the deal is signed.
  2. Booby traps: Unexpected events that could kill the deal if they happen.
  3. Run of the mill: Scenarios that are likely to happen but you probably have the resources to deal with them.
  4. Irritants: These events aren’t likely to occur but if they do, your company will have no problem responding.

Otherwise your business combination could fail to add value, provide insufficient return on the money spent on the deal or suffer a drop in productivity, at least in the first four to eight months after the transaction.

In many cases, failures occur in transactions that make perfect business sense. The difficulty is that due diligence often concentrates only on the financial and legal implications of a proposed transaction. Less time and effort goes toward such critical people issues as corporate cultures, values, work habits and attitudes.

Cultural Due Diligence

These issues are important to the employees of companies on both sides of a combination. Failing to deal with them effectively and early on can result in crucial employees leaving and productivity slowing. In extreme cases the corporation may wind up unable to function effectively.

Cultural evaluation has become a high priority when a merger or acquisition is on the agenda. Among other qualitative factors, having a professional conduct one of these evaluations will reveal each company’s:

  • Values, management style, work environment and founding philosophies;
  • Strategic visions to determine areas of compatibility and synergy; and
  • Assessments of employees, customers and other stakeholders, and evaluation of areas of common ground and avenues of potential conflict.

While no integration between two organizations is ever seamless, significant obstacles can be identified early, making it easier to determine if potential culture clashes might outweigh the benefits.

Cross Border M&A: Bridging the International Divide

Complex, cross-cultural factors need to be carefully examined. Cultural differences and the potential benefits of cultural diversity need to be evaluated for each organization.

Specialized knowledge is often needed to deal with sensitive areas, as the companies need to forge understanding across cultural divides. CEOs who have completed cross-border mergers consistently note that the effort for cultural integration was much greater and considerably longer than they had anticipated. This stems from several issues:

Political sensitivity, which discourages overt references to national differences to avoid causing offense. This can be carried to such a degree that people become even more uncomfortable with their new colleagues than if they felt free to express their feelings and what they expect after the merger is completed.

Lack of understanding of the rules of business behaviour in different cultures. It is important to understand the behaviours they will encounter in a newly purchased business. For example, and very broadly speaking, Americans are not as formal as Europeans, the Japanese find form and ceremony to be important, Germans tend to admire certainty, and Swedes prefer consensus rather than executive decisions.

Strong reactions to the potential loss of a national icon. When U.S. conglomerate PepsiCo was rumoured to be planning a takeover of French food giant Danone, the government stepped in to draft a law to protect companies in “strategic sectors.” This type of reaction strongly supports researching potential local responses and coming up with plans to ensure they won’t hurt the new corporation’s ability to operate.

Difficulties caused by language barriers. Communication can be significantly hindered when companies from different countries meld. But trying to enforce the acquiring company’s native tongue can spark resentment and bring cooperation to a snail’s pace. Some multicultural companies have resorted to adopting a neutral third language as the official corporate language.

It used to be that the financial issues of a merger were thought to far outweigh the value of the qualitative issues. But companies have learned the importance of focusing on becoming an integrated entity where all the divergent pieces eventually fit together.

Consult with your advisers to discuss this type of planning. It can help your business be more confident that the transition will be a relatively smooth one.

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