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Viewpoint - September 2018

Post-Merger Success: Increasing the Odds

By Bob Gershberg, CEO & Managing Partner, Wray Executive Search With Merger & Acquisition activity in the industry continuing at a heated pace, it is time to revisit the importance of cultural integration. M&A due diligence should go way further than a perfunctory view of the balance sheets, company records and competitive set. In fact, a whole host of business, legal and human capital considerations ought to be enmeshed. Conflicting company cultures is one of the biggest reasons for failed mergers. According to a report by the Hay Group, an astounding 91 percent of mergers fail because of culture shock. Once asked if the ill-fated AOL Time Warner merger was a success, Steve Case, the architect of the deal joked, “Of course it was. We could never have lost that much money on our own.” “Culture clash” is the oft mentioned culprit.  In this era of mergers, private equity acquisitions or change in ownership, so much time is spent on financial due diligence, pre-closing, but so dreadfully little on post-acquisition strategy. So much time spent on studying the existing state with so little focus on innovative assessment of how to improve and change the existing state. So much time spent on financial capital but so little on the human capital side.

The history books are littered with cases of mergers that collapsed miserably due to a failure to merge synergies. One of the highest profile of all time was the 1998 merger of Daimler Benz and Chrysler. On paper, the M&A made perfect sense. The union of two iconic global brands and car manufacturers that would complement each other’s product portfolios and gain greater market access in broader geographical regions. Yet, what ensued was nothing short of a nightmare. The two company cultures came together like oil and water. Daimler Benz followed a traditional hierarchical approach, whereas Chrysler was risk-taking, loose and entrepreneurial. The sparks literally flew between the Germans and American teams, leading to the walk out of key Chrysler executives just before the merger. The Sprint and Nextel Communications merger was another one to study. In a $35 billion stock purchase, the companies became the third largest telecommunications provider. Sprint catered to consumer markets with local phone connections, while Nextel had a core business market. The merger was meant to cross and upsell each other’s’ products. Yet again, the problem of company culture reared its ugly head. Sprint had gained an appalling reputation for customer service, experiencing the highest churn rate in the industry. Three years later, Sprint took a $30 billion write-down. The processes of cultural assessment and cultural integration both conceptual and tactical are integral in attaining post-merger success. The statistical downturn in productivity in a post-merger organization can be avoided with well-conceived swift action, an abundance of positive communications flow and a heap of attention to the target company teams.

An integration team with participation from both target and acquirer needs to be created. The requisite for swift communication flow, effective retention of valued people, retention and transfer of knowledge, facilitation of severance and minimization of culture clash cannot be underestimated. These processes will enable rapid business integration of the HR function, policies, programs and roles to position the organization for sustainable performance. A well-executed cultural assessment and cultural integration are essential for post-merger success. Whether you are acquiring a company to run stand-alone or merging it into an existing platform, having the right management talent in place, coupled with a culture that allows for fast and collaborative decision making is paramount to a company’s success.   Ensuring that you have the right talent and culture to succeed in today’s hyper-competitive market is the path to glory. So, my friends, time for a shameless plug. We are the best in the industry at Integration and Cultural Analysis. If acquisition is a part of your growth strategy, be it financial or strategic, well-defined cultural human capital integration analysis can be the difference between success or failure. Call us – we will increase your odds for the quick win! All the best,

Bob Gershberg | CEO | Managing 875-9993 ext 102 Finding tomorrow’s leaders today! ——

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