Mergers and acquisitions (M&As) are notoriously complex and challenging to manage. So tricky that many fail, leading to wasted time, money, resources, and effort. A report by McKinsey found that one in ten large M&As get cancelled each year.
In our previous article, How Culture Makes or Breaks Mergers & Acquisitions, we discussed one main reason for M&A failure: a need for due attention to cultural aspects. Other factors play a part in M&A success. Stable leadership during the process is undoubtedly a critical element that helps ensure a clear vision and strategy, keeping a steady ship. The benefits include minimised disruption and a higher chance of a smooth transition.
This article discusses ways to maintain leadership stability during M&A and how to support leaders in managing the process.
Unstable leadership makes good deals go bad.
The Good: Walt Disney & Pixar
Walt Disney has seen incredible success since the acquisition of Pixar for $7.4 billion in 2006. Although the two businesses had very distinct cultures, leaders made sure to clearly communicate their goals to their teams. Leadership on both sides also carried out thorough preliminary analysis and effective negotiations to ensure the deal would benefit both sides. By focusing on this, they were able to provide the successful exchange of technology without harming either business’ cultural integrity. (Walt Disney, 2006).
The Bad: Daimler Benz and Chrysler
Remember ‘Daimler Chrysler’?… not many people do. In 1998, Mercedes-Benz and Chrysler announced their $37 billion merger, forming Daimler Chrysler. But, less than ten years later, Daimler sold Chrysler to Cerberus Capital Management. The merger seemed like a no-brainer at the time. But the two powerhouse automakers were businesses that, in reality, had very different cultures, operational styles, and expectations for the merger. A key factor noted in the deal’s demise was “delay, ambiguity and failure by leadership to provide directional guidance on key issues”. (M&A Partners, 2017)
Stable leadership drives confidence.
Leadership stability is always important, but it’s even more crucial during mergers and acquisitions. As the example of Daimler Benz and Chrysler shows, combining two companies can be chaotic, and without a strong and stable leadership team in place, the transition can be more challenging. Investing time, money and effort in the right approach and strategy alleviates the stress these changing times can bring.
As highlighted in an article by McKinsey, “Organisations with the right integration capabilities are 1.6 and 1.7 times more likely to exceed cost and revenue synergy targets, respectively.”
Leadership provides confidence for customers, employees, and stakeholders during great uncertainty and change. Yet, this is only possible if the leaders have confidence in themselves first, backed up by the critical skills needed.
How leaders can ensure stability during Mergers & Acquisitions
Open and honest communication with employees.
Communication in any business dealing is vital, but even more so in M&A. Focus on early and positive communication, keeping employees informed about the M&A process. Be open about any changes that might result in leadership roles and responsibilities. Rumour and speculation will immediately fill any vacuum of information, which can damage the combined organisation. Part of your communication strategy should focus on reassurance, as this is paramount. Senior leaders should visit the teams they inherit, talk with them and get to know them. All conversations must be consistent, with a clear, common message.
Identify key leaders and equip them.
During a merger or acquisition, it is essential to identify key organisational leaders who will play a critical role in the transition. These should be brought on board early on and kept informed throughout the process. They should also be able to provide feedback and input throughout the process, with any concerns or questions quickly addressed by those leading the M&A. Furthermore, new leaders may need training and support in their new roles to lead during and after the M&A. At Quirk, we provide training and support for new and existing leaders.
Give cultural aspects due attention.
Combining two organisations is a lot like bringing two people together – they are not the same. Ignoring culture could lead to ingrained problems with stability, performance, and even the longevity of the acquisition. A thorough cultural diagnostic for both parties will help identify misalignment, ‘key’ people and any skills gaps across both cultures. The outcome of such diagnostic work could be follow-on workshops to explore the expectations and aspirations of people on both sides of the transaction. We help leaders assess cultural fit and provide support during and post-M&A, ultimately improving the acquisition integration.
Maintaining leadership stability during mergers and acquisitions is essential for the success of the combined company. By focusing on communication, training and support, and cultural aspects, organisations can ensure that they have a stable leadership team to ease the transition and set up the acquisitions to achieve their long-term goals.