The Five Facets of Merger and Acquisition (M&A) Management

Throughout our work, organizational psychologist Philip Mirvis and I address combination management from five distinct but overlapping perspectives:

            Strategy.  M&A is not a strategy.  It is a means for a company to achieve its strategy.  The second edition of our book “Joining Forces:  Making One Plus One Equal Three in Mergers, Acquisitions and Alliances” is not a primer on strategy; rather it examines how companies can best translate their growth strategies into the search for and selection of a combination target or partner.  We also show, based on some hard earned experience, how different strategies dictate different degrees and types of integration. 

            Organization.  Are you buying a product brand or a business?  Our book presents a hands-on case study showing how Unilever had problems trying to preserve the power of the Ben & Jerry’s brand following its heavy-handed integration of the acquired ice cream maker’s factories—a situation since improved as the two sides learned to work together.  By comparison, P&G expanded its male customer base with its well-designed integration of Gillette.  In the new volume, we build on our prior writings to show how to integrate businesses functions by function to capitalize on synergies without destroying the vital “organizational ability” of a partner. 

            People.  To paraphrase Gerry Levin, former CEO of Time Warner, there are a lot of psychological things going on in M&A.  As organizational psychologists, we’ve written about them crystallizing in the Merger Syndrome.  We’re updating that material in our new edition with the latest research on which emotional reactions are more prominent at different stages of a combination and what interventions are best suited to address them.  On the practice end, some interesting methods are being used to help people to surface and talk about the psychological aspects of M&A. 

One of us worked with a client that made innovative use of “toys” to surface feelings about culture in the merger of two large Midwestern firms.  In one exercise, employees from each of two merging companies were asked to choose from a variety of toys and objects the ones that represented their feelings about the combination.  One employee chose the “etch-a-sketch” to represent the future because “everything is a blank screen.”  Other items selected—a menacing pirate, a prowling lion, and a scrambled egg—evoked more harrowing images.     

            Culture.  In prior writings, we have identified the sources and symptoms of culture clash in M&A.  In our latest book, we pay special attention to the clash of multiple cultures in a combination—across companies and nations.  The scale of cross-border M&A continues to grow and the contours are changing:  Chinese companies, for instance, now spend far more on cross-border acquisitions than foreign investors spend acquiring companies in China.  How about doing a deal in Eastern Europe? “Slovenes do not appreciate the ‘American’ style,” reports our colleague Lidija Drobež, an M&A consultant based in Ljubljana.  When asked whether it was Americanism that bothered her countrymen, she said not at all, “We love Americans.  It is your aggressiveness in running our businesses that is the problem.”  Her studies indicate that the real aggravation for Slovenian acquirees is that the parent company executives rush in, change things, then move on and their replacements repeat the process. 

            Transition Management.  In this updated and revised volume, we focus on best practices to accelerate and improve transition management.  Studies find that the interval between the announcement and closing of deals has fallen dramatically, from roughly 130 days a decade ago to 60 days in the past year.  Why?  The internet and new software technology has led to the formation of “clean teams” that can consolidate information from two companies and prepare combined balance sheets and unit by unit comparisons for use in precombination planning.  FedEx’s acquisition of Kinkos highlights how you can speed up the combination period in a friendly deal with the right structure and processes. All 1,200 Kinkos stores were rebranded within four months of the close.  Employees involved in the combination, over 18,000, went through roughly forty hours of training on combined products, processes, systems, and corporate culture—some 700,000 hours in toto.

            At the same time, some innovative methods to “slow down” the acculturation process were pioneered by Tex Gunning, who led the combination of Unilever and BestFoods in Asia.  Executives from thirteen Asian countries were molded into a leadership community and embarked on journeys across the region to get “first hand” knowledge of their markets and their own cultural diversity.  The result was a transformation of their business that helped to reshape the parent company’s operating philosophy and product lines.

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While no one knows when the impact of the global economic crisis will subside, one thing is clear:  once business and credit markets rebound, there will be a huge wave of M&A.  Some executives will make smart moves to fill product or service gaps, enter new markets or participate in industry transformations.  Others will be less strategic and more opportunistic as they go on a shopping spree for targets at bargain basement prices.  “Joining Forces:  Making One Plus One Equal Three in Mergers, Acquisitions and Alliances” aims to help those who want to create lasting value with M&A.

Why a New Edition of our Book on the Human and Cultural Aspects of Mergers & Acquisitions?

With our first book, Managing the Merger, Philip H. Mirvis and I were dubbed ‘merger mavens’ by Fortune magazine.  The second, Joining Forces:  Making One Plus One Equal Three in Mergers, Acquisitions and Alliances, was called the M&A “bible.”  So why a second edition of Joining Forces"?  Several reasons:

·         Early on we identified the “Merger Syndrome,” the human reactions to the uncertainty and threat posed by combining businesses.  We showed how this Syndrome afflicted not just everyday workers and managers, but also the deal makers and leaders on both sides of combining firms.  Nowadays, the majority of the corporate workforce has been through a combination or some other organization-wide restructuring or traumatic change.  Many more senior executives are M&A battle tested and integration managers have better training and more tools available to put companies together.  This new book helps these seasoned managers to accelerate the process of putting companies together and shows how to build longer term resilience in a merged workforce.

·         Much of the case material in our two earlier books dealt with big deals in industry consolidations, large companies absorbing small firms, and either U.S., European, or cross-Atlantic combinations.  Today the M&A landscape has changed.  Firms like Cisco and Google use alliances as an R&D strategy and take a phased approach to M&A.  Companies are buying into growth markets with acquisitions that require a delicate balance between integration and preservation of an acquiree.  Global companies are acquiring businesses in China and India.  And Chinese and Indian firms, like Chinalco and Tata, are globalizing by acquiring U.S. and European assets.  These deals pose new kinds of strategic challenges and present new forms of the culture clash that destroys so many mergers.  This book identifies the organizational and cultural issues posed by these new forms of M&A and how to best manage them.

·         Finally, our guidance in earlier volumes concerned managing a single combination—how to select a partner, set integration goals, put the companies together, bring people along, and so on.  Here we also talk about developing an M&A competence within companies—drawing lessons not only from GE and Cisco, but also Asian companies that have benefitted from the M&A lessons learned by Western counterparts .  Here we describe how to create a merger mindset in firms, merger competencies among senior managers, and merger readiness and execution skills among professionals and workers at every level.  We believe that the capacity to conceive, organize, and implement combinations can become a core competence of companies and a source of competitive advantage. 

This new volume shows what it takes—for firms and for their managers—to do M&A well.  As with our previous books on M&A, our aim is to blend theory, research, and especially practice in a useful and insightful volume.  To accomplish this:

• We not only report the who, what, how, and why’s involved in implementing proven practices in each of the phases of a combination, we also highlight their relevance in different kinds of deals and which ones matter most in eventual M&A success.
• We share our personal experiences (good and bad) as researchers and advisors in many deals and the best of the academic and practitioner literatures on making mergers and acquisitions work.

Getting One Plus One to Equal Three

My primary interest is with a specific breed of merger, acquisition, or alliance: the type that attempts to build some strength or capacity greater than that present in the partners as independent organizations. Getting one plus one to equal three calls for sound strategy and a careful management process to guide identification and attainment of true and productive synergy. Opportunistic deals, combinations made purely for cost-cutting reasons, or acquisitions meant more to satisfy a CEO’s ego than to enact a cogent business strategy are not likely to enhance the partners’ abilities to achieve their desired business and financial results. Slamming two organizations together and eliminating redundancies may achieve one-time-only cost savings, but does the organization reap sustainable gains in ability to compete over the long haul?”