When a buyer announces a strategic acquisition, the positive synergies are always emphasized in the rhetoric. A CEO in a recently-announced $3B telecom merger gushed, “The proposed acquisition makes both companies stronger, faster, and smarter.”
However, a study by the Rotterdam School of Business indicates that positive synergies are almost always overestimated, and negative synergies underestimated.
One of the greatest underestimated negative synergies in M&A is the inevitable clash of cultures. Why is it underestimated? One reason is it’s near impossible to quantify. But consider this: the average business spends 40% of its revenue on human capital — the cost of wages, benefits, and talent acquisition. Now look at the following facts, and ask yourself: Will culture clash impact the bottom line?
- 4 out of 10 managers leave during the first 24 months of a merger — 3 times the normal rate (Pritchett)
- When a company is acquired, even if there is no significant impact on their job, the percentage of actively disengaged employees increases by 23% (Aon Hewitt).
- It takes up to 3 years to reach the pre-merger level of highly engaged employees (Aon Hewitt).
Do disengaged employees cost money? Does replacing leavers cost money? In both cases: absolutely.
Another reason culture clash is underestimated is because the dealmakers aren’t around to experience it. Lawyers, business valuators, financiers, and M&A advisors are all compensated based on the deal closing. There is little incentive for them to worry about what happens later.
Interestingly, according to a study by Pritchett, private equity firms are the most likely buyers to conduct a formal program aimed at cultural integration in M&A scenarios. Why? Because they are genuinely interested in the long term financial success of the deal.
What specifically can be done to reduce culture clash in M&A? According to the Aon Hewitt study cited above, during a change event, employees need connection. They need connection with leaders, in the form of more two-way dialogue with leadership. Plus they need connection with coworkers, seeing them unite and support one another during a stressful period.
Beginning this journey can be both exciting and daunting. Visit our Intranets 101 page for a comprehensive understanding on everything intranets and how to improve your workplace culture.
Have questions? Get in touch! We're always happy to hear from you.
December 2, 2014