Organizational, people and cultural issues in cross-border M&A

Organizational, people

and cultural issues in cross-border M&A

Brigid SutcliffeSiddall & Company

World Services Group11 April 2008

E-mail: [email protected]: www.siddall.co.uk

Tel: +44 20 8392 5900

2World Services Group, 11 April 2008

About Siddall & Company

Founded in 1979Founded in 1979

Specialist management consultancy

Specialist management consultancy

Engagements in Europe, US, China, India & Africa

Engagements in Europe, US, China, India & Africa

Member of Institute of Business Consultancy

Member of Institute of Business Consultancy

Making cross-border mergers & acquisitions work

Making cross-border mergers & acquisitions work


Structure

Context: The M&A landscape

M&A deals: Organizational, people and cultural problems

How can acquirers avoid the problems and increase the chances of success?


M&A is still an essential part of corporate strategy

Huge M&A volumes: Value of global M&A in 2006 was $3.5 trillion 50% is cross-border M&A

Possible impact of the “credit crunch”?

M&A is an important tool in corporate strategy to achieve Growth Geographic expansion / presence in emerging markets Expansion into adjacent or upstream/downstream product markets Access to new technologies Cost reduction/efficiencies


M&A: “A triumph of hope over experience”

M&A activity is growing fast but the success rate continues to be low

Fewer than 25% increase shareholder value

More than 90% of mergers are not fully successful

Over 70% of managers believe that cross-border deals are harder than domestic transactions

Source: Hay Group Report ‘Dangerous Liaisons'


-15% -15%

6%

13% 13%

26% 26%28%

Financingissues

Legal issues Due diligence Integrationplanning

Communication& engagement

Selection ofmgt team

Cultural issues Pre-dealsynergiesevaluation

‘Soft’ factors

Focus of effort: % improvement in chances of success relative to average M&A deal

Source: KPMG report on M&A

Focusing on ‘soft’ factors improves chances of success


Structure





The M&A Process: What can go wrong

StrategyStrategy TransactionTransaction IntegrationIntegration EvaluationEvaluation

Typ

ical is

su

es

•Unclear strategy

•Wrong target

•Insufficient focus on people and cultural issues

•Inadequate communication/ engagement

•Integration plan too “top down” and insufficiently flexible

•Lack of prioritisation & clear milestones

•Victory declared too early, leaving underlying problems unresolved

•No systematic evaluation of how integration is working on the ground

•Overpaid for target

•Excessive focus on financial and legal due diligence

•Incomplete due diligence esp. people & cultural

•Planning doesn’t start early enough


Reasons for M&A failure

Critical omissions in due diligence and post-merger integration strategies

Firms prioritise financial and systems due diligence and not ‘intangibles’

Insufficient focus on ‘intangibles’ (business culture, human capital, organisational structure and corporate governance) makes failure more likely

Result: Lack of engagement and commitment Over 75% of acquired company employees opposed their mergers, and

half of them did so actively 30%+ of business leaders were dissatisfied with the post-merger climate


How culture clashes scupper M&A deals: Examples

Some high profile examples: Wal-Mart in Germany, Daimler/Chrysler

Acquisitions of founder-managed businesses: Existing culture may be deeply embedded, idiosyncratic and personality-

based

Acquisitions by low-margin, volume businesses of high-margin, customised businesses:

Very different people, focus, KPIs etc (Ford/Jaguar, Ford/Volvo)

Acquisitions of marketing-led businesses by engineering-led businesses (BP/Burmah Castrol)

Apparently similar businesses with very different and embedded national or other cultures

Insufficient effort put into understanding differences Insufficient effort put into integrating the businesses Deutsche Bank/Morgan Grenfell

Differences in national cultures

Differences in business cultures

Language problems

Extent of integration

Structure and processes

Governance and decision making

Importance of people

HR processes

Management capability

M&A Integration Diagnostic Tool

Organisational structure & processes

Leadership & People

Culture


Good management of soft factors builds value

Cisco:

Pro-active employee retention, including top management and buddy system

Communicate a vision of the merged entity and role for the target’s employees

Communicate the advantages: resources, autonomy, part of a ‘winning team’

Result: Most acquisitions have added value to Cisco

Renault-Nissan:

Obstacles to success: language, decision-making processes, communications patterns, accountability systems and labour/management relations

Integration plan aimed at mitigating the cultural backlash and planning recovery

Result: Nissan business was returned to profit


Structure





Framework for success

Culture


Leadership & People

Strategy & Context

Integration Plan

Communication & engagement



Culture


Leadership & People

• Management capability • HR processes

(remuneration, performance bonuses, induction/recruitment, career development)

• Key characters/ stakeholders (influencers, unions)

• Power map of key stakeholders


Power map

Power level

High

Low

TrendDecreasing Increasing

A

B

C

D

E

F

G



Culture


Leadership & People

• Values and how they are lived

• Corporate ethics• Interpersonal relationships

(individuals/meetings)• Languages• Decision making process• Conflict resolution• Taboo subjects/ no

go areas• Resistance to change


Culture gaps

Cultural dimensions rating

0

1

2

3

4

5

6

7

8Consensus

Fast decisions

Focus on results

Entrepreneurial

Long time horizon

Team orientation

Willingness to accept conflict

High risk appetiteOpen to change

High levels of accountability

Horizontal cooperation

High levels of trust

Open and honest communications

Fast communications

Face to face communications

Acquirer

Target



Culture


Leadership & People

• Organisational structure• Processes• Governance• Customer relationships• Communications


Alternative organisational structures

Finance function reports through the business line

Network of finance and control relationships to Group CFO

Reporting to local CEO

Local CFOs report directly to Group CFO

Solid reporting lines

Business units unable to exert undue influence on BU level CFOs

Group Executive

Divisions

CEO

CFO

CEO

CFO

CEO

CFO

Independent finance reporting line

CEO CFO

CEO CFO CEO CFO

BoardAudit

committeeBoard

Audit committee

Board


We help to manage the ‘soft’ factors


Post merger health check


Pre-deal Integration planning &

implementation

Integration planning &

implementationEvaluationEvaluation

Post-deal

Organisational and cultural due

diligence


diligence

‘Soft’ factors:

•Leadership & people

•Culture

•Organisational structure & processes


Organisational and cultural due diligence

Process (depending on access to target’s management and employees)Data room / desk research Focus groupsFace to face interviews SurveysTelephone interviews

Output (based on available information)Written report providing objective review of

• Important people issues• Cultural fit of acquirer and target• Gap analysis• Issues that may create conflict in the new organisation• Key areas to focus on during integration process• Proposed outline organisational structure for the new organisation• Communication priorities

BenefitsIdentification of key ‘soft factors’ in the dealPlanning of immediate post-acquisition actions (communication, retention etc)Plan communications programme to manage expectations and contain anxiety


Success factors for integration planning and implementation

GeneralCross-party integration teams (from acquirer and target)Communicate, communicate, communicate

Leadership & peopleSelection of top management team (new teams are more successful)Leadership team communicates the strategy and demonstrates the

behaviours for the new entityReduce uncertainty, explain the logic for the acquisitionListen, listen, listen

CultureCelebrate the past Recognise cultural differences, don’t over-integrate

Organisation structure & processesClarify roles and responsibilitiesAdapt or adopt governance


We help to manage the ‘soft’ factors




Pre-deal Integration planning &

implementation

Integration planning &

implementationEvaluationEvaluation

Post-deal


diligence


diligence

‘Soft’ factors:

•Leadership & people

•Culture

•Organisational structure & processes


Post-merger health check

ProcessDesk research Focus groupsFace to face interviews SurveysTelephone interviews

OutputWritten report providing objective review of:

• Current state of cultural fit between acquirer and target• Unresolved issues, misunderstandings and cultural differences that are

preventing successful integration• Key areas of conflict and their underlying sources• Lessons learned (successes and failures)

Priorities for future actionsRecommendations for implementation

BenefitsIdentification of persistent underlying people and cultural issues and differencesPlanning of remedial actions (communication, management actions etc)


Case study: Post-merger health check

The client

International chemical specialities manufacturer with a turnover of €500m operating in over 30 countries

The problem

They had recently acquired a US-based global company, which would enable them to strengthen their presence in a different market segment. The integration of the two companies was well planned and seemed to have been well executed. However, after some months, it became clear that there were serious tensions over the ‘soft’ factors

• Persistence of “them” and “us” culture• Poor communication across the two companies• Confusion over roles and responsibilities • Each organisation felt that its way was superior, both were unwilling to change• Poor morale which could have resulted in some key senior people leaving


Case study: Post-merger health check continued

The health check process

We conducted confidential interviews with the senior management team from both companies. This process allowed us to gain valuable insights into their concerns about the unresolved issues, misunderstandings and cultural differences which were getting in the way of a successful integration. These issues were analysed and an objective report was presented, highlighting people’s experiences of the integration process between the two companies, clearly identifying the specific difficulties and problem areas behind the tensions.

The outcome

• Underlying problems identified and objectively articulated early• Platform created to enable both parties to address the problems• Clear process developed to resolve them• With one exception, the original management team stayed on• The acquisition is now a successful autonomous division within the Chemical

specialities group


Conclusions

M&A is an essential tool of corporate strategy

Focus on soft factors gives a better chance of success

Every deal is different – the best acquirers have a flexible approach

Culture


Leadership & PeopleStrategy &

Context

Integration Plan

Communication & engagement


Siddall & Company - Making cross-border M&A work

Any questions?

Organizational, people and cultural issues in cross-border M&A

Documents

Transcript of Organizational, people and cultural issues in cross-border M&A