Mergers & Acquisitions: Mistakes to Avoid

There are many advantages when two companies merge to become one entity or when one business acquires another. Assumed cost reductions, economies of scale, an increase in market share and access to a wider consumer base are just a few of the reasons that mergers can be an attractive proposition. However, the process of merging and acquiring can be very challenging as leaders are confronted by numerous pitfalls along the journey.

 

  1. Not Conducting Comprehensive People Due Diligence

One of the common mistakes that buyers make when they are keen to seize an opportunity is neglecting to comprehensively undertake people due diligence. This can lead to making assumptions regarding employment instruments, industrial relations environment, OHS and wellbeing status, leadership capabilities, remuneration arrangements and more. The potential outcomes of neglecting people due diligence are higher legal costs, dissatisfied shareholders, stressed out employees and a drawn-out process that doesn’t end up being as beneficial as expected.[1]

People due diligence, like all other forms of due diligence requires expertise to identify, analyse and respond to data which may impact the overall bid process and price point.   A people-focused approach must be undertaken to future proof the new organisation.

 

  1. Downplaying the Impacts of the Change

As the leadership team focus on the practical steps of a merger or acquisition and pour over contracts and financial statements, they can make the critical mistake of playing down the impacts of the change on the employees. Fundamentally, it is employees who are a significant factor in the success of a merger or acquisition. And while easing their anxieties is important, being honest about the changes in their workplace is vital in gaining their trust.

Communication needs to be prioritised and delivered immediately, regularly and face-to-face wherever possible. In the absence of communication from leaders, employees create their own versions of what is happening, which is how rumours and gossip begin.

When working with our clients, our M&A team at Change2020 will first map out the key messages, and coach leaders to deliver these. We ensure employees are equipped with the information they need and can access leaders to ask questions and engage in a variety of two-way information sessions. From our experience, there is no risk of overcommunicating, so we help leaders do it in a way that is clear, concise and reassuring.

It’s also important to encourage employees to provide insights, ideas and suggestions during such a time of change. Having systems and channels in place through which employees can feel heard and included is crucial to the success of a merger or acquisition.

  1. Neglecting to Make Adjustments in Workplace Culture

In addition to preparing employees for the change in organisational structure, systems and processes; leaders must prepare for the cultural transformation that comes with a merger or acquisition. Company culture involves shared values, beliefs, and assumptions that influence behaviour, attitudes and meaning.[2] Culture is often one of the main obstacles of a successful merger or acquisition.

When the American telecommunications company Sprint acquired rival Nextel back in 2005, in what is now known as “one of the worst mergers in history,”[3] its failure to adequately address the culture clash between the two organisations led to the eventual shut down of the Nextel network in 2012. Employees reported mistrust on both sides, with some Nextel employees saying they felt that the aggressive, entrepreneurial style that prompted its early success was eliminated by Sprint’s more bureaucratic approach.[4] The lesson here is that culture has to be comprehensively addressed in order to ensure successful integration.

Of course, avoiding mistakes during a lengthy and complex transition is easier said than done. This is why a successful M&A venture requires a team with industrial relations, culture and change management knowledge to be put in place. The Change2020 specialist advisory team provides comprehensive support and expertise to organisations in transitioning their business and employees through the M&A process. We bring expertise in industrial relations and workforce strategies to guide your team through employment contracts, managing and negotiating with union representatives and we ensure there are no potential breaches of labour laws or exposure to industrial risks.  For more information contact us here.

[1] https://www.huffingtonpost.ca/evan-thompson/merger-acquisition-mistakes_b_10352244.html

[2] https://www2.deloitte.com/content/dam/Deloitte/us/Documents/mergers-acqisitions/us-ma-consulting-cultural-issues-in-ma-010710.pdf

[3] https://www.cnet.com/news/sprint-gets-the-nextel-monkey-off-its-back/

[4] http://www.washingtonpost.com/wp-dyn/content/article/2007/11/23/AR2007112301588.html