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Mergers and acquisitions: Don’t overlook the importance of people and culture
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Mergers and acquisitions: Don’t overlook the importance of people and culture

Over the next two to three years, merger and acquisition (M&A) activity is likely to increase as a result of the impacts of COVID-19 on businesses.

Businesses may look to investment opportunities to secure additional customers and entry into new markets to expand, grow, diversify, defend their market share or divest non-core assets. While M&A provides middle market business owners and leaders with a vehicle to realise some of their long-term wealth and legacy goals, the people and culture side of mergers is often overlooked or not prioritised in the acquisition strategy or during the execution of the sale process.

Getting the people and culture transition right in the execution of a merger is critical to the long-term stability and success of a business, and it should be addressed from the earliest stage possible in a transaction. For many private and family-owned businesses, challenges arise when organisations don’t have adequate internal change management capabilities amongst their teams.

A recent transaction that included the merging of two major Australian organisations, both with hundreds of employees, required a lengthy transition process. This transaction had its challenges, which pushed the team to adapt and evolve to achieve the best outcome for all stakeholders. While most transactions are rarely smooth sailing throughout the entire process, there are key things organisations can do to manage the people and culture of two merging organisations effectively.

Collate data to understand people and culture success factors

The effective merging of people and culture across organisations needs to inspire your teams and get them engaged in the journey ahead. To put rigour around these factors, businesses need to collect data on each organisation, including the capabilities across all business functions. This data gathering can be in the form of analysing organisational structure and performance, but it’s also important to collect direct feedback from people across each business. Comparing these different sources of information will allow the transition team to identify any inaccuracies between the perceived and actual organisational culture and capability.  Prior to the merger or acquisition, conducting a thorough change management readiness assessment will highlight the potential risks and both organisations’ appetite for change itself.

Adjust your approach based on timeframes

When a transaction occurs over a longer timeframe, leaders within the transition team will have time to develop hypotheses about the best ways to integrate two organisations to maximise value, manage risk and deliver change. Developing and analysing different approaches allows the transition team to understand how various strategies may impact the business and your people. On the downside, however, a longer transaction time can mean that once it comes time to integrate the two organisations, there is a lot of fatigue amongst people from both businesses. This fatigue is caused by the protracted transaction time, but also strategic and operational issues that arise. Your people may be dealing with the challenges of reduced capacity due to an increase in workload associated with the merger along with stagnation from putting key projects on hold until the organisations integrate.  Your people are key to success of the merger and cultural integration. Good planning, early engagement of your people and an agile approach will set your organisations up for success.

Plan early and remain agile

A merger typically has many unknowns which makes an agile approach particularly effective. You’ll need to think about how your organisation will broadly approach each stage of the merger process and consider how the transition team may adapt to changes from a people and culture perspective. Some key considerations your people and culture team should make are outlined below.

Establish work streams

Your transition team should include leaders and influential people from across each business. Depending on your organisational structure, this leadership team may be placed into work streams based on business functions such as technology, media and communications, finance, people and culture, and the technical, industry-specific teams in the business. Of course, organising and managing several work streams requires a significant resource investment, so you may need to adjust your approach based on the size of your organisation.

Assess your organisation’s change management capability

Effective change management is critical for every merger. If change in your organisation is typically driven on an ad-hoc basis, you’ll need to think about how you can develop long-term change management capabilities. As a priority, however, your transition team should address three key elements for effective change management:

  1. Develop the change methodology: Your organisation needs clear direction on the change framework, roles and responsibilities across the transition team and broader business and how processes, systems and tools will merge.
  2. Have a wide view of the merger program: Consider all the changes that need to happen across the business, who has responsibility for implementing these changes and how this will impact other parts of the business.
  3. Strengthen change capability: Change management often isn’t the sole function of the people and culture team. To build this capability, identify early adopters to the merger and work stream leads to continuously gather feedback on how people across the business are responding to change.

Be strategic in merging each part of the business model 

When two organisations merge, the transition team needs to consider how the business models will integrate, taking into account factors such as leadership, organisational structure, systems, and values and culture.

Leadership

If you can, select and appoint leaders quickly using objectivity and data, ensuring there is comprehensive rigour around the selection and appointment process. The merged organisation will need a mix of leaders from both businesses, so the people and culture team have a clear understanding of the capabilities across both businesses.

One of the most common challenges that leaders and people and culture teams will face is cynicism when people perceive the actions of the leadership and transition team aren’t aligning with what was previously communicated. Your organisation needs clear and visible custodians of change, which is why it’s critical to identify leaders and early adopters of transition early. Further, those people in the organisations who typically question processes and systems should be engaged for feedback. Having someone to play “devil’s advocate” ensures key issues aren’t overlooked, and activities and communication are received in the way these were intended.

A challenge here is also the confidential nature of M&A activity and the need to control messaging, communication and the timing of internal communications and announcements.

Organisational structure

Usually, the most cost-effective structure is to merge business models based on function. For example, your organisation may go from a centralised model where shared services such as finance, people and culture and IT are driven from teams based in one location to a decentralised model where accountability is dispersed. This decentralised model can be a great way to provide more autonomy for leaders across the organisation to drive decisions and revenue growth. However, your systems, processes and culture need to be right before dispersing accountability.

Systems

Amalgamating technology platforms is a complex process. You need to consider which systems and technology in each organisation will be most suitable in moving forward. Further, you’ll also need to identify which systems should be integrated after the transaction is completed. For example, payroll is a critical piece of technology for all organisations, and the risks of consolidating these systems throughout the merger process may be too great. To that end, organisations should take a risk-based approach to identifying what technology infrastructure should be used moving forward and the order in which these systems will be amalgamated.

Values and culture

Similar to monitoring the response to communications, your transition team needs to understand the perceived and actual cultures of each organisation. Take the time to allow people from each organisation to communicate how the culture and values are expressed internally. These research and feedback processes will reduce assumptions that may have been made around the espoused values and external branding of each organisation, which further reduces the risk of people and culture issues once the organisations have merged. Further, this provides the transition team with a platform to link feedback with the objectives of the merger, which is critical for keeping people engaged in what can be a lengthy process.

Draw on common people and culture lessons from other mergers

While every merger is unique, the people and culture issues that can arise are often based on common challenges. As a baseline, organisations should have the following lessons in mind as a basis to strengthen their approach:

  • set clear and measurable goals
  • look after yourself as a leader and maintain balance outside work
  • identify your key stakeholders and keep them engaged
  • ensure your executive leadership team is front and centre at all times
  • engage people from day one – the early adopters are key
  • ensure the organisation’s words and actions are aligned
  • in the case of a restructure merger, make sure processes are clear and transparent
  • resilience and get comfortable with ambiguity
  • align your activities to your acquisition or divestment strategy
  • ensure your activities are prioritised in the overarching execution of the sale process

Realise synergies and continue strengthening your organisational culture

Many unexpected things can happen in the merger process, which can impact the transaction itself and the people and culture of an organisation over the long term. Being proactive and agile to effectively manage change and engage different people and teams across both organisations is critical to the success of a merger. This approach not only helps the initial transition stage go smoothly, but it allows the organisation to establish the strong foundations it needs to keep progressing post-merger.

If you’d like to discuss managing people and culture integration throughout the merger process in your organisation, and how to align this to a thorough M&A strategy, contact a Pitcher Partners specialist.

This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional advisor. To the maximum extent permitted by law, neither Pitcher Partners or its affiliated entities, nor any of our employees will be liable for any loss, damage, liability or claim whatsoever suffered or incurred arising directly or indirectly out of the use or reliance on the material contained in this content. Pitcher Partners is an association of independent firms. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Liability limited by a scheme approved under professional standards legislation.
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