Mergers Aren’t Marriages: A New Perspective On M&A Integration

Many in the industry believe the best way to integrate organizations post M&A is to take the best of both cultures, and build a combined 50-50 partnership. They say it’s the “right thing to do”. It’s how we show homage and respect to the legacy organization.

But this strategy of integrating two cultures may not be the best approach. The companies that do M&A well know this, and now we are able to show concrete evidence to back it up. The research findings of my Ph.D. dissertation found that organizations with dissimilar cultures outperformed competitors between 5-10 years post acquisition.

Why Are Two Different Cultures Better for Long-Term Performance?

First, merging two dissimilar cultures forces the organization to decide on the integration strategy. A key decision will be, do we keep the entities separate, like a private equity holding company? Or do we fully integrate the organizations? Once that decision is made, leaders can chart a clear path for restructuring.

Second, when the organizations have different cultures (and strategies), it becomes easier to integrate during the restructuring, because the stronger culture will dominate. This is true to form of how an acquisition is supposed to work. It’s authentic, and authenticity is critical for maintaining leadership credibility during change.

Why is Assimilation Better than Integration?

mergers-not-marriagesThere’s no need to sugar coat it. Employees know that M&A is about revenue and earnings growth. When you frame your integration strategy as “we are going take the best of both organizations, and build a unified partnership that strengthens the bond between the company, employee and customers”, and you’re not true to form, you sound inauthentic. Employees will think you’re only telling them what they want to hear.

Employees have a very strong nose for “B.S.” If you tell them you’re building the best of both, but don’t deliver, you could go into an integration tailspin. You’ll lose critical momentum and credibility from employees, leaders and shareholders. Mergers and acquisitions are a confidence game, and it’s critical to go from a state of change to business as usual as soon as possible. The longer you take to try and integrate the two organizations, the less confidence you instill in your stakeholders and shareholders.

In my research, I investigated the role that strategy and culture have on M&A performance. We used regression analysis to determine whether strategy and culture were significant predictors of stock price, earnings per share, and price-to-earnings ratio. What I found was that companies that acquired a target company with a different strategy and culture had higher stock prices than similar organizations between 5-10 years post acquisition.

And with that piece of data, allow me to repeat myself. And this time, I’ll say it with less academic jargon or consultanteeze spin: Don’t marry your companies together. There’s no need to make M&A integration harder than it already is.

When you have to build an integration strategy, here some guiding thoughts to help on the change journey:

  1. Determine your strategic intent: Why did you want to acquire the target in the first place? Was it for the whole company? Or just a division? Or maybe it’s only a product? Intent is critical, and a previous article of mine explains in more detail why you start with strategy versus culture in M&A.
  2. Identify the kind of structure you will want to build: If you’re fully integrating, research the global and local operations and relationships that align to the strategy. Start mapping out the structure, processes, and design reporting relationships. The key is finding strategy alignment.
  3. Design a culture to match your strategy and structure: In the end, your culture needs to align with your strategic goals and structure. For example, if your business is in a highly regulated industry, and your focused on stability, and margin, then it is likely you need to design a culture grounded in hierarchy, processes, and rules, to maintain operating efficiencies.

In the end, not every acquisition requires the parent company to fully integrate the target company’s workforce to be just like them. Just look at companies like PepsiCo (PEP), Omnicom Group (OMC) and General Electric (gE). PepsiCo has a stake in well over 100 different global brands including Gatorade, Quaker Oats, Frito-Lays, Tropicana and Sabra Hummus. The Omnicom Group describes themselves as a strategic holding company with over 1,500 agencies globally, and General Electric once was both a manufacturing company and a media organization with NBC Universal (Comcast now owns NBC Universal).

This shows that companies can acquire drastically different organizations, with very different strategies and cultures, and still “make the marriage work”.

Culture Change is a Complex Process

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