11 Oct Mergers ‘need to take cultures into account’
MANY mergers and acquisitions destroyed value because of a lack of understanding about which company culture best suits the new entity, Tjaart Minnaar, MD of business consulting company OIM, said yesterday. The acquiring company focuses too much on the financial and operational strength of the company it is buying and not on how the company actually functions, Mr Minnaar said.
While large companies have learnt from experience what works in mergers and acquisitions, small entrepreneurs are bought often and things get messy,& Mr Minnaar said.
There had been a spate of local and international mergers that highlighted the importance of cultural integration measures, he said.
The first half of 2011 has seen high- profile merger and acquisition activity in SA. While much of the focus (in) these deals tends to revolve around financial aspects, often very little attention is paid to the cultural integration of the merged entities,& Mr Minnaar said.
The challenge was greater when foreign companies bought local companies.
The biggest retailer in the world, Walmart, purchased Massmart and American insurance firm Aon bought Glenrand MIB.
Mr Minnaar was not in a position to evaluate comment on specific mergers and acquisitions but he said a recent study by KPMG had shown as many as 50% of 700 deals struck over the past two years had destroyed value.
He said during the due-diligence process more attention needed to be given to the differences and commonalities in organisational culture between the companies.
A culture integration plan could then be developed to merge the original 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,& he said.
In the first nine months of this year, SA saw deals worth $12,4bn, which is an increase of just under 8% compared with the same period last year.
A major deal was the Capital Property Fund’s acquisition of Pangbourne Properties for nearly $1,8bn.