Business Intelligence


After the merger

Published: 08-MAR-06

The Americans, after the main Iraqi war, protested that George W Bush did not plan to maintain the peace after he had waged the war. This is why the war is still raging, two years after it had supposedly ended. We must, while preparing to wage the war, also prepare to maintain the peace afterwards. All mergers are looking for greater value at the end of the road. However, for this objective to be realised, it must be carefully crafted.

Make no mistake, it is usually difficult to come up with a new structure for a merged organisation. A number of people don�t even think it is necessary, which is why they normally adopt the structure of one of the merging entities � usually the one with the dominant interest. Now we are beginning to realise that a new structure is vital to the success of a New Merged Co.

Many managers think a new structure is not too important. However, this has become a key component in achieving good performance at the bottom line. More than 50% of mergers normally don�t realise their expected value. If our organisations are not going to fall into the wrong half of these statistics, we must take the evolution of a new structure very seriously.

In creating the new structure, we should have taken into consideration the fact that all deals go through certain stages, the end result of which is presumed to be the creation of superior value within the shortest possible timeframe. The merged entity should command greater revenues, larger economies of scale, greater reach and more brand presence � all in as short a period as can possibly be achieved. But does it?

Sometimes it doesn�t because the New Structure must be conceptually formulated; and often times it has not been. The human resource requirements must be defined. How many full-time equivalent staff are required to deliver x value to our customers and our company? Many merging entities just pretend that they can divide the staff numbers into two and move on with business. Which skills are required in the business for the attainment of our corporate goals, which include customer satisfaction? Many merging entities are not looking at this in a scientific manner. Some are absorbing the skills available in the dominant entity; others are absorbing the people with perceived delivery skills, which are not entirely relevant to the end product, namely value creation.

A merger would usually have significant side effects on the effectiveness of the people within the organisation. The longer the merger process, the more stressful it will be for staff members. The process also creates an environment from which people constantly want to escape, so voluntary attrition may rise significantly immediately after a merger and for indefinite periods afterwards.

Recent best-practice research has shown that cultural issues are a very common cause of organisation failure. This is why many new tools are now being used to measure cultural factors. An analysis of an organisation�s current culture would examine issues surrounding leadership, work environment, structures, tools, decision-making, policies and practices, internal and external communications. The way in which an organization makes decisions, for example, is a key part of that organisation�s culture. The knowledge and information flow within an organisation is a key measurable factor in an M&A situation. The use of teamwork and other preferred styles are a key component of the cultural climate within an organisation. All of these can be measured in a deliberate and quantitative fashion, and the results of these analyses will tell their own story. A skilled facilitator can help an organisation bring out the key issues.

We must not forget a vital and key factor in the M&A equation. What�s in it for me (WIIFM)? That is the question on the minds of all employees. One of the reasons why employees ask themselves this question is the �survival factor�. Many people will act irrationally in this period, compelled by fear, anxiety and suspicion. This factor needs to be taken into consideration when a new structure is being designed.

What does a company in an m&a situation need to do?

  • Begin early in the process to design the after-merger structure. A post-merger structure is not something to be done after the merger. On day one of the merger, the structure should be ready.
  • Recognise that existing staff members are unlikely to readily have the skills and the impartiality required to deal with the creation of a new organisational structure. During this period, there will be too many vested interests and the climate will be too unstable to expect that employees will do this job to attain the required business result. Even if they have these skills, they would at best be rusty from lack of use because they have current business pressures which take up their time and they do not use these skills regularly.
  • More recent best-practice research finds that a formal and systematic system of treating the people and culture issues in an M&A creates enormous mileage for the New Co. However, many M&A participants do not know this yet. However, if you measure the results of companies that actively work on this aspect, it is clear that there are tangible business results to be achieved from paying attention to this.

    This article was first published in Business in Africa Magazine, February 2006. To subscribe click here

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