When organic growth stalls, bold companies seek mergers and acquisitions to bolster revenue, acquire new capabilities or enter new markets. But even the most promising deal can fall short of expectations, because the path to successful integration is strewn with land mines.
Worse yet, an analysis of the Towers Watson Quarterly Deal Performance Monitor reveals that risks escalate as companies venture across borders to expand their global reach. The percentage of cross-border deals rose during the first quarter of 2010, yet acquiring companies barely outperformed the market, proving that global transactions impose unique obstacles. Despite boasting higher success rates, domestic deals certainly aren’t problem-free. Defections by key leaders, declining employee engagement and misaligned cultures are bona fide hazards that often go undetected during due diligence and later threaten the transition.
“Financial due diligence focuses on the obvious risks,” says Christine Infante, consultant with the Rewards, Talent & Communications Practice at Towers Watson. “Integrating people and cultures poses a substantial transactional risk, yet culture fit and integration are often overlooked during the pre-deal assessment and planning phases.”
Smart Business spoke with Infante about the strategies and tactics that lead to a successful integration.
Why is the post-acquisition period so perilous?
Executives often focus on the economic synergies created by the acquisition and underestimate the need for employee and cultural cohesion that ultimately determine the deal’s success. They also subscribe to the theory that assimilation takes about 100 days, when achieving complete alignment of business processes, technology and compensation plans may take a year or more. If change management and communications programs cease before the assimilation is complete, top performers can be left vulnerable to overtures from competitors. Our surveys show that even dedicated employees who want to do a good job can get lost navigating the subtleties of a new culture or ambiguous administrative procedures.
What can be done to avoid these issues?
Our research shows that leadership is critical during turbulent times and leaders must be involved in every phase of the transition. Take steps to retain the right managers after an acquisition so they can assure operational consistency and shepherd employees through the change process. Keep your finger on the pulse of the organization by measuring leader engagement at the beginning of the process, throughout the first year, and into the next year. Finally, create a framework for success by giving them the training and the tools they need to execute their mission.
