History shows that only 50% of Merger & Acquisitions (M&A) deals yield expected results (Vazirani, 2012).
Among various causes, the most frequent reason is simple: even outstanding financial models can’t predict how teams with different cultural backgrounds will synergistically share knowledge and efficiently work together. At DSML, we specialize in executive recruiting for the US subsidiaries of European companies, to help firms undergoing mergers or acquisitions be equipped with the C-suite executives and leaders necessary for a smooth acquisition and integration.
M&A strategies provide opportunities of economies of scale and scope and an accelerated path to a global critical mass. Over the past decades, the digitalization of the business landscape has made M&A a sound strategy to accelerate the acquisition of tech resources in the United States.
Since 2008, the annual number of M&A transactions worldwide fluctuated between 40,000 and 50,000. While numbers dropped in 2020, the trend is expected to resume as the world recovers from the pandemic.
How can organizations prepare themselves for their M&A plans to yield or exceed forecasted results?
Imagine the acquisition of a US entity (company B) by a European firm (company A) in search of an accelerated path to global leadership. Company A’s goal is to foster a symbiotic integration of company B’s technology into their core capabilities.
According to Jemison&Sitkin, 1986 an acquisition plan goes through four stages:
1. Target identification
2. Financial and strategic analysis
In the first three phases, financial advisers play a major role in helping company A screen firms in the United States that carry desirable assets and capabilities, rolling out strategic match and financial plans modeling, assessing risk and providing negotiation power support.
Yet, the success of the integration stage, which can last between 6 to 18 months, is conditioned by two questions:
– Are the two organizational cultures compatible?
– Is company A well equipped to manage cultural differences between A and B?
The higher the desired integration level — i.e., entire reorganization of resources or high level of teams’ interdependencies — the greater the challenge.
Preparing teams per functional area from companies A and B as soon as possible — i.e., possibly during the last steps of the negotiation — is essential to successfully navigate this integration phase. This will allow teams to work toward developing a shared organizational culture, and progressive harmonization of methods and processes.
Understanding the nuances in cultural values differences between the two entities is the next most important step. For example, most misunderstandings between Latin European and Anglo cultures are grounded in cultural variations in the decision process, relationship and distance to power, communication styles, and tolerance for uncertainty. Such cultural values can be learned in workshops customized to the acquisition context. By the same token, they can strengthen the retention of key stakeholders. There will be key differences in hiring when juxtaposing any two cultures.
Finally, the selection of a leader profile able to understand the cultures of both company A and B will be essential in the first 12 to 18 months. Such a leader should be able to span boundaries to bridge geographical, organizational, and cultural gaps between the two entities. For example, deciphering meeting dynamics, paying close attention to non-verbal communications will provide early signals of potential misunderstanding or conflicts and allow for action plan or structural adjustments. It is for this reason that any firm looking to make acquisitions should work with an executive search firm, ideally one that specializes in cross-cultural recruitment, throughout the process.
Looking to start the conversation? We offer a no-cost, no-obligation conversation with our partner, Fabienne Münch, PhD from Cultural Crossing Consulting regarding the cultural challenges pending with a merger, or an acquisition.