The Washington area has seen a jump in merger and acquisition activity in 2013. Our firm, Optimal Networks, an IT services company, contributed to this trend when we acquired IT support company Database & LAN Solutions in July.
Will all of the mergers and acquisitions in our area succeed? The deck is stacked against us; after all, according to a study conducted by international tax, audit and advisory firm KPMG, 83 percent of all mergers and acquisitions fail to produce any benefit for shareholders, and over half actually destroyed value. Interviews with more than 100 senior executives involved in these 700 deals over a two-year period revealed that the overwhelming cause for failure is “people and cultural differences.”
So, what can a company do to ensure that the coming together of two companies will be a prosperous — and enduring — partnership?
One word: culture. Pay attention to it.
Sure, the financial and accounting due diligence must happen and, yes, the CEOs of both companies must connect on various levels, but what makes for a truly successful acquisition is the time spent assessing and integrating the culture of the company being acquired. Five areas that need to be evaluated are:
Organizational values: Values drive the people and processes of an organization. It is imperative that you talk to leadership within the organization being considered for acquisition to get a sense of how their values are revealed daily. To do this, you need to listen carefully to their client stories and their service anecdotes. Do their actions match their beliefs, and do their beliefs align with your organization’s values?
Recruitment and retention practices: What do both organizations encourage? What do they provide employees? Look at the company’s recruitment and retention practices to get a sense of what they prioritize.
Cultural compatibility/integration: How do the employees of the company being acquired get along? More importantly, how will they get along with your employees? Although pre-acquisition mixers usually cannot take place, it is important to assess the personality of the organization before both parties sign on the dotted line. Post-acquisition is when the work here really begins. Once the deal is finalized, provide multiple opportunities for the two camps to join together both formally and informally. Create a cultural integration plan and follow it. I hosted a large barbecue for everyone in my backyard, and made sure that our Spirit Day (organizational planning and goal setting retreat) teams were well mixed. Employees from both organizations need to trust, like and respect each other in order to be productive.
Client service systems: Does the company being acquired have a similar sense of client service priorities? Which of their systems outperform yours, and vice-versa? The company we acquired serviced the majority of their clients remotely; our services have always been packaged with an on-site component. We learned from their extensive remote services operations; they were educated about the importance of our approach. The result was improved processes on both the remote and on-site fronts.
How the organization functions: There is quite a bit of “reading between the lines” involved in assessing a company for acquisition. Do they do what they say they are going to do? Do they embody what they say about themselves in the marketplace or is it empty propaganda? When there is a client crises, how do they respond and are their processes similar to yours? Do their day-to-day functions and responses remind you of your organization’s?
Vetting an organization from a profitability/financial perspective is relatively straightforward; evaluating their culture to ensure a successful integration is not. Because culture is a reflection of the people in an organization, no two companies can ever foster the exact same culture. Add to this the fact that there is a lot of confusion on both sides during a merger or acquisition, and you have a recipe for failure — unless you’ve invested the time to do cultural due diligence and plan for a successful cultural integration.
Heinan Landa is the chief executive of Optimal Networks, a company that provides IT support, management and consulting services.