01 May 2012 local and international mergers highlights importance of cultural integration measures
May 2012: The first half of 2012 has seen high profile merger and acquisition activity in Africa with a total of 30 deals amounting to $3.5bn according to data by Mergermarket. While much of the focus around these deals tends to revolve around financial aspects, often very little attention is paid to the cultural integration of the merged entities.
According to Tjaart Minnaar, MD of OIM International – one of South Africa’s leading business consultancy firms – the failure to properly understand and address the organisational and cultural aspects of a merger and mainly focusing on the financial and operational aspects, are key reasons why a high percentage of mergers do not realise their intended benefits.
“Cultural integration is particularly challenging when it comes to mergers between foreign and local companies, which are currently prominent in South Africa with deals such as the global engineering and technical specialist company Aurecon, who recently merged with South African based NETGroup and last year Walmart’s $2.4bn purchase of a stake in South African Massmart.” says Minnaar.
Furthermore he says that South Africa have started to move away from mainly western economy mergers and acquisitions towards Eastern economy mergers with countries such as India, China and Japan. He refers to the 2011 acquisition between Japan’s Kansai Paints who acquired South Africa’s Freeworld Coatings.
Minnaar says that during the due diligence process more attention can be given to the organisation culture differences and commonalities between the companies so that a culture integration plan can be developed to merge the cultures into the desired culture for the future entity.
“The cost of misaligned cultures can be extremely damaging to a business and becomes evident through good talent leaving the businesses, poor morale and negativity and the slow integration of operations,” says Minnaar.
According to Minnaar, management need to focus considerably on communicating and engaging with staff in a transparent manner. While no implementation can be done before the Competition Authorities have approved the merger, companies must develop a comprehensive plan around how they will communicate the merger when it is publically announced.
Following this, Minnaar says that once the merger is approved by the Competition Authorities, it becomes crucial to clarify for all employees exactly how the merger will impact them personally in terms of their daily tasks and overall career direction. It is important to try to keep the period of uncertainty as short as possible.
“Employees need to know where the company is going, what is important about the merger and what the company brand and ethos stands for. Specific attention needs to be given to how the brand and ethos will be translated into day-to-day behaviours and key deliverables of employees. Without this knowledge, there is bound to be misalignment between the intent and the outcome,” he explains.
According to Minnaar, while most employees’ primary concern will be how the merger will affect their individual role, they will also want to know about any changes to the organisation’s leadership structure. This implies that senior leaders need to be visible and communicate directly with people at all levels
“The new leadership roles in the new business need to be clearly communicated, as well as how employees are expected to interact with them. In the same vein, the way that employees and cross-functional teams should interact with each other in the event of the merger must be clearly communicated – and any potential cultural or interpersonal barriers must be identified,” he says.
Minnaar stresses that if employees understand the cultural differences and effort to communicate the impact on people and their roles – it is likely that the merger will result in more efficient and productive interaction between teams and departments – and ultimately a stronger bottom line performance for the organisation.