Values and purpose: the secret to M&A success
After seven years of rampant growth, merger and acquisition (M&A) activity across the world is slowing. But while the transactions themselves may be fewer in number, they are still taking place — just with more aggressive valuations. As the stakes become higher, the pressure on the C-suite to ensure profitable, sustainable mergers increases. But focusing on the bottom line is not enough to guarantee success, the C-suite must engage with the deeper values and purpose of the business, ensuring they are understood by all stakeholders.
Management consultancy Deloitte’s report ‘The state of the deal: M&A trends 2019’ reveals that as many as half of the deals entered into by 40% of the 1,000 corporate and private equity executives questioned, failed to generate the value expected at the start of the transaction. The biggest single factor in getting it right was considered to be effective integration, which requires a clear strategic plan.
“If the transaction doesn’t fit with your culture or plan for how the organisation should operate, it’ll fail,”
Such a plan should cover three key considerations, believes Chris Chinaloy, Chief Operating Officer of The Beautiful Truth: how the merger or acquisition fits with the overall purpose of the business, how it fits commercially and how it fits in terms of culture.
“If the transaction doesn’t fit with your culture or plan for how the organisation should operate, it’ll fail,” he says. “So you have to have a clear strategy and use it to lay the foundations for a good integration.”
Part of this strategy involves deciding how much you value the people and culture of the business being purchased. So, for example, if a company is small and the aim is to acquire its assets or intellectual property, there is likely to be less concern over the cultural impact of the move. If the transaction is of a similar size and the main focus is on obtaining talent, however, the integration should be much more thoughtful.
Reaping the rewards
A key problem though, points out Karen Taplin, a partner at management consultancy Positive Momentum, is that many companies, even in the latter instance, simply concentrate on the bottom line. This is despite the fact that once a deal has been done, financial considerations alone will “not be enough to reap the rewards”.
Senior leaders generally feel under a lot of commercial pressure to go for ‘business as usual’
“Ultimately, it’s the emotional health of the business that will make it a success,” she says. “But ensuring that can be a bumpy ride when you’ve got two cultures meeting each other because cultures are created by people, all with their own values, beliefs and behaviours.”
Moreover, senior leaders generally feel under a lot of commercial pressure to go for ‘business as usual’ rather than take what is generally a rare opportunity to explore the joint organisation’s values, mission, vision and purpose as well as how they want the merger or acquisition to work.
But Taplin warns: “Failure to engage stakeholders with ‘who are we now that we’ve merged’ ultimately devalues the brand and what made it successful in the first place.”
Important questions here include why do we exist, how do we behave in relation to our values and what has to happen for us to succeed. But in order to tease out the necessary responses, it often makes sense to bring in an objective third party facilitator to help.
“Values are the most important thing as they’re the DNA and, if they’re shared, it’s an easy process.”
The aim is to hold coaching conversations with executive board members from both parties to explore their understanding of issues, such as potential opportunities and challenges, their views on purpose and what the move means for them personally. The next step is to hold an interactive workshop to discuss the findings and build consensus over the organisation’s values going forward.
“It’s important to look at both sets of values to find similarities and differences and see how they blend together,” explains Chinaloy. “Values are the most important thing as they’re the DNA and, if they’re shared, it’s an easy process. It becomes more difficult if both companies believe in different things, but it just means you have to try and find common ground.”
The next stage is to define the company’s purpose, vision and mission based on these values. Once agreement has been reached, meanwhile, it is vital that executives demonstrate a united front behind them and that they are communicated effectively both inside and outside the organisation to everyone from shareholders and employees to customers and suppliers – which is where communications departments come in.
The power of effective communications
Their focus is on devising a communications strategy and action plan that involves all parts of the business. In more concrete terms, following the ‘big reveal’ and a series of town hall meetings and/or road shows to share key messages, mini-workshops can prove useful to enable managers to take part in two-way dialogue with their staff. Appointing a number of team leaders as ambassadors to help spread the word and gain momentum can also help.
“It’s about visibility, so you’ve got regular communications going out but you also get to hear about what’s going on in the shop floor,” says Taplin. “With values and purpose, there has to be a sense of connection, that is, how do I fit into the big picture, so it’s important that feedback goes both up and down the organisation.”
Chinaloy agrees, but points to the particularly important role of middle managers in sharing rather than imposing corporate values on staff. A key challenge here is that, despite the crucial role middle managers play in getting their teams on board, they are not generally involved in high-level conversations, which all too often fail to filter down effectively. But this situation tends to lead to communication roadblocks.
Sharing real-life, personal stories of how such values are being lived on a day-to-day basis is another engaging way of harnessing “the value of purpose” and bringing it to life
Another problem is that if middle managers fail to understand key messages, they are unlikely to be able to make them meaningful for employees.
“Each individual has values they may well share with the company, but unless managers tap into them, they’ll never unleash their power and people will just feel like they’re being told to do their job,” Chinaloy says. “But if you tap into those values by speaking to people on a one-to-one basis, for example, when looking at a work plan and how they specifically contribute to that, you can unlock extra motivation by speaking to their heart.”
Sharing real-life, personal stories of how such values are being lived on a day-to-day basis is another engaging way of harnessing “the value of purpose” and bringing it to life, he adds.
While failure to get it right may not necessarily kill off the merger or acquisition completely, according to Taplin, it will certainly bring about a “bumpy ride”, with companies “less likely to reap the benefits”.
“If cultures and values are mismatched, it tends to lead to a lack of engagement across the organisation, which ripples out onto customers. Not being internally healthy has an impact on services, which ultimately means you may not end up getting the value you were expecting,”.