Companies often merge with their competition in order to create economies of scale. But not all mergers are successful. Why not?
First of all, blending the cultures of companies are fraught with challenges. A company with a relaxed atmosphere and casual dress code might conflict with a company who wear formal suits. Cultural styles can vary from patterns of speech, value systems, lifestyle, city attitudes, headquarter locations and so on. Merges also fail because the business model of one company is archaic or outdated. If you were a farmer and had a diseased sheep would you mate it with another healthy sheep? Definitely not. Surely you would opt to “put it down”.
Companies who grow through acquisition have long histories of laying off personnel as part of their restructuring and losing customers. This breeds complacency, de-motivation and a loss of hard-earned experience. Most companies who grow by the sword, die by the sword. If only these types of mergers could buy the assets (the people and customers) without buying the diseased thinking or systems of the company then it might be worth considering. If you can justify your economies of scale without justifying away 20% of your ‘new companies’ employees, then you’re creating good business karma.
Another challenge with merging is the distraction a merger causes for employees customers and managers. The distraction opens the doors to competitors to move more swiftly and capture significant business from BOTH companies who are attempting the merger.
“So which mergers actually succeed?” you might ask. From experience, mergers should exhibit the following 5 characteristics in order to be considered potentially viable candidates for a successful merger:
1.Cultural synergy.
If one company’s culture is jeans, pinball machines, cut-throat hiring/firing and impulsive decision-making and your company values clear processes and systems for most activities, good communication and values employees (no layoff policy) then you may have a big challenge on their hands.
2. Compatibility between mission statements and direction.
What are you trying to do? What are they trying to do? If they relate closely, you have the first element of success. Is it a merger or a takeover in disguise?
3. Beneficial economies of scale.
Larger does not always mean better. Some larger companies cannot respond as quickly to market changes due to their size and the challenge coordinating new directions to employees. Economies of scale are not always beneficial so make sure you can quantify that having more of one direction is what you want.
4. Headquarters in same city/region.
If your company is headquartered in neurotically fast-paced, job-focused New York and the other country is based in a slower-paced southern state, you might have a big problem. Two companies should be headquartered near each other to maximize the return on the investment and maximize the economies of scale. It is harder to communicate halfway across the country than it is to communicate someplace 10 miles away.
5. Demonstrable positive growth.
If buying a company with more advanced technology that would take far longer for you to create then it makes sense to buy. Or, if their success in a market has consistently eroded your ability to be successful in multiple business segments, it might be beneficial to learn from them. There are two ways to do that: hire their people, or buy their company.
If you cannot see the positive effects from a merger, clearly, concisely, and where at least 90% of your employees will embrace the merger, then it is not recommended.
Far too many companies announced mergers in the past, proudly beating their chest saying they would become the No. 1 in their market by combining the No. 2 and No. 4 companies only to end up No. 3 or No. 4 (or worse) when the dust settled.
The best way to grow a company is to hire smart people, build a consensus for growth based upon integrity and honesty, and enable people to create and innovate to the best of their power. Rushing into mergers can do more harm than good.
Stockholders – stand up and be counted.
Knowing how a merger will affect your investment in a certain stock requires that you first understand the circumstances and the conditions of the buyout. Ask yourself three important questions:
1. What is the current financial condition of each company? If both companies are financial healthy then joining them together is likely to make each entity stronger. If one company is in trouble then the other will be saddled with the problems of the other.
2. How many shares will you have after the merger takes place?
In some cases, if one company is eliminated after the alliance takes place the shareholders of the eliminated company might receive only 1 share in the new company for every 4 shares you had in the old company depending on the current market price. You might want to sell before the merger takes place.
3. How much is the acquiring company paying for the smaller company?
If the acquirer is paying less than or equal to what the smaller business is worth, this might not be a good sign.
Shareholders will be given the right to vote on a merger before it takes place.
The management of the company usually holds most of the shares, so their votes count for the majority. Make sure you exercise your right to vote.
Your decision should be based on what will be the best for the future value of your shares. Examine the income statement and balance sheet of the other company to make sure whether the merger is beneficial or detrimental.
The purpose of this article is to throw open the pro’s and con’s of a merger. Study the facts and you should be able to ascertain what the consequences will be. Use your common sense and you should be fine. Better still seek professional advice just to make sure.
Remember that throughout the process of merging, communication, both internal and external has to be frank, honest, transparent and motivational. Not only are people going to be scared internally about the safety of their jobs, but they are going to need reassuring as to where the company is going and what their role is in this new venture.
The process is one of enrollment into the new vision so that people can become advocates and brand ambassadors.
Most companies spend their time ensconced with the management consultants, accountants and lawyers and then hand out bland statements of vision, mission and values once the internal systems have been restructured and reorganized.
Then staff are expected to lift up the baton and run with it, without a real sense of purpose or direction and usually without any dynamism or commitment. The sense of pride is lost as is the sense of belonging. In essence the brand equity is diluted at best and non-existent at worst. This is where the real capital of a company lies, in its brand value. And this is best expressed by the employees living (and loving) the brand, how it is expressed and activated at all customer touch points. This is a self-perpetuating cycle. As Oliver Cromwell said: “my army won because they knew what they were fighting for and they loved what they knew.”
Once the systems and processed have been worked out in the new merger, CEO’s need to get the brand consultants in to fire up the brand, identify the new DNA or brand story and how this is going to be manifested, communicated and lived by the employees. Thus begins the process of brand engagement with key employees so that the essence of who you are, what you do and how you do what you do (values), i.e. what you value, is shared and allowed to be experienced.
The earlier that this can happen on the journey to a new beginning, the better.
The best brands are the ones where time and energy have been taken to not instill the vision, mission and values in a way which can be absorbed and lived by employees, but also to then roll this out into the customer experience, seamlessly and effortlessly, the experience transmitted by the employee and transferred to the customer.
This is how ordinary brands become great brands.
