Mergers and Acquisitions: Culture Clash
Today’s headlines are dominated by Mergers and Acquisitions But what’s actually happening on the inside when two corporate cultures try to live together as one? Unless the marriage is planned as carefully, the resulting shock can leave both sides estranged.
Late last winter, when Steve Cadigan, the worldwide HR chief for Burnaby tech company PMC-Sierra, arrived in balmy Herzliya, Israel, to court a young semiconductor company, Passave Inc., he immediately became hooked.
The company was growing fast, it was entrepreneurial and well-advised, boasted cutting-edge technology. It also had a global outlook – just what his rapidly expanding electronics company was in the market for. Cadigan could easily imagine how the company’s DNA – its talent – could be -integrated into the fast-paced and entrepreneurial technology culture of PMC-Sierra, which has over 1,000 employees.
But executives of the 150-employee Passave weren’t so sure. They felt Cadigan represented a giant North American manufacturer after their technology and revenue – in essence, to turn them into a quick roadside lunch on the highway to the future – and wouldn’t understand their way of thinking at all. They were an entrepreneurial, creative bunch looking for funding in order to expand aggressively, and the last thing they wanted was to be buried way down in a traditional organization chart as a tiny unit of some division in a huge conglomerate.
Cadigan, in turn, was astonished and confused. Passave’s perceptions of PMC were the opposite of what his company actually was, he felt. It took a considerable amount of discussion to convince Passave’s executives that
PMC-Sierra was, in fact, a mid-sized company from Canada, dedicated to rapid growth and in a sense very much like them, only bigger. This wouldn’t be a swallow; it would be a partnership, with common purposes.
Once the perception problem was straightened out, the deal was done quickly. Last May, Passave became the latest piece of the ambitious $300-million-a-year plan by PMC-Sierra to more than triple its size through mergers and acquisitions by 2009. The troubling hitch that almost derailed the deal had been all rumour and misperception – two of the most common problems associated with mergers. As globalization increases, so does the pace of mergers.
Mergers and Acquisitions Checklist
According to the consulting firm Booz Allen Hamilton, two-thirds of mergers fell short of financial and other expectations. New York University’s Stern School of Business says as many as 70 per cent of M&As fail in that they don’t live up to their financial promise. These studies say one thing that can cause mergers to unravel is the lack of attention spent making sure the two cultures successfully merge. This reflects the reality that many M&As today involve buying talent as much as they do revenue streams, people as much as processes and ¬cultures as much as organizations. It also reflects a very powerful requirement in mergers today: there must be a clear, well-thought-out strategy in place for how the acquired company will help the acquirer.
Certainly, there are some acquisitions where the people equation simply doesn’t seem that important – big company snaps up ¬smaller one for its production capability or to boost its ¬revenue growth and feed good news to the stock markets. If Alpha Footwear buys Beta Shoes, it’s mostly concerned with ¬production efficiencies or product lines, and not so much with the people who run the machines.
But when an acquisition involves a business where knowledge, talent and people-based research or service are as important as the product being churned out, the situation can get much more complicated. These ¬acquisitions will be much more concerned with strategically merging cultures than they are with simply buying production. And, say observers, they’re often as driven by people concerns as they are by spreadsheets. Of course this means they are also messier and more difficult to handle than the slice-and-dice process common in mergers where it’s more about buying product rather than talent.
That’s why HR – a management function that at one time would have been shut out of an M&A deal until much later in the process, when it was time to figure out compensation and pension plans – is now at the table right from the beginning. HR professionals are there to identify how the people that are being acquired will fit into the existing company culture.
“They have to be part of the due diligence because they have to determine the cultures involved and look at the pitfalls that could be present in the merger,” explains Graham Dodd, Vancouver-based national practice director for Watson Wyatt Canada’s Human Capital Group. “A lot of pre-merger due diligence is mechanical and involves finances and technology. But when you’re dealing with people, behaviour change may be required, and that’s not as easy.”
Santa Clara, Califorina-based Business Objects and Vancouver’s Crystal Decisions performed a very scripted $1.2-billion merger in late 2003. The two business-intelligence software competitors spent a lot of time at open kimono (pre-merger discussions) sessions considering the possible benefits and pitfalls of cultural integration. In fact, they engaged a very large U.S. consulting firm with experience in this kind of thing to map out the process for them. Simply put, it involved three phases: the pre-close requirements for day No. 1 of the merger; the tasks to be accomplished in the first 45 days; and the tasks required after that to achieve full integration, with an eye to bettering share price performance. Also, as part of the acquisition and integration process, Business Objects used new software called rganizational Culture Inventory to help plan and monitor organizational change and
facilitate the merger.
Save over 50% off the newsstand price with a subscription to BCBusiness Magazine
