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.
Learn more about intranet use cases in this whitepaperRead more
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.