If you are interested in finance or follow current events, you likely have come across headlines about major mergers and acquisitions.

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Also known as M&A, these transactions often generate buzz due to the well-known brands involved or the size of the transactions.

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Market share, reach, shareholder value or competitive pressures are among the reasons cited and get most of the attention during M&A analysis. It’s rare, though, that the heart of the organizations involved – people – receive much discussion.

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While the media tends to gravitate towards the financial rather than human capital involved because it’s easier to measure, several studies indicate many companies that initiate an M&A make the same mistake.

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The Harvard Business Review published a great analysis of the turbulence that occurred following Amazon’s takeover of Whole Foods in 2017, observing a collision between “loose” and “tight” cultures that resulted in a lack of cultural compatibility.

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A 2018 Mercer survey also cited culture as a reason for a high failure rate of M&As, reporting that:

• 43% of M&A transactions worldwide experienced serious culture issues that resulted in deals that were delayed, terminated or purchase prices that were negatively impacted
• 67% of deals experienced delays in synergy that were attributed to culture issues.

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With such dismal results and so much at stake, it’s vital that companies devote just as much time to the frontline as the bottom line to generate a successful outcome.

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Identifying gaps – and opportunities

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If culture is an important consideration in a successful M&A, how can organizations take measures to achieve a smooth – and ultimately profitable – transition?

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One tactic that we recommend conducting is a cultural audit. This allows both organizations to get an accurate picture of the current culture and where gaps – and also opportunities – exist.

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Communication is also vital immediately following the completion of an M&A and before it becomes public. Staff should always hear key details first and from a key senior leader who is willing to not only share the what but the why of a deal. In some cases, doing nothing isn’t an option due to financial or competitive pressures so management has to have this candid conversation so staff have a full grasp of the rationale.

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Supporting the C-Suite

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Depending on the size and complexity of an M&A, additional support is often required by executive leaders. For example, we recently assisted a large machinery company with its merger with a smaller industrial services company.

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With a range of distinct business areas involved, we interviewed key stakeholders on both sides of the acquisition and then we worked with the management team on a detailed change process that included tools and coaching to help drive a successful outcome.

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One important note: While organizations often set a specific timeline – such as a 120-day plan – to spur a laser focus during the transition stage, our recommendation is to exercise patience and flexibility while a cultural integration occurs. This provides an opportunity to identify and assess any cultural risks and address them along with common concerns such as a fear of job loss, loss of identity or a change in reporting structure.

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Embrace the heroes and the zeros

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With the business world rapidly evolving (see our Future of Work post), mergers and acquisitions will continue to be a staple of finance and investing. Standing still simply isn’t an option.

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While financial due diligence will always be a core part of the exploration process, isn’t it time that the Jills and Jays – and Mark and May – strongly figure in your next M&A? After all, without people, would you even have a company in the first place?

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Pragilis Solutions is a boutique change management firm based in Vancouver, British Columbia, Canada that puts people first. If you are considering an M&A – or dealing with change – email us at info@pragilis.com. We would love to collaborate with you.

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