Communication... what communication?

M&As rarely live up to financial expectations, owing to the often underestimated difficulties of bringing together two entirely different organisations. Frequently, the management teams involved in the M&A end up focusing on internal aspects, such as cost savings and operational synergies rather than the customer, and hence customers end up going elsewhere, so revenue falls and the problems start to exacerbate.

It is also clear that communication is an absolutely critical part of the change process, and is usually managed poorly with senior representatives underestimating the impact of uncertainty. According to a report from PriceWaterhouseCoopers, failure to achieve proper integration was the major cause of unsuccessful mergers. And poor communication lay at the heart of poor integration.

It's all in the ear of the listener. Understanding the mood of the affected employees and anticipating how they will react is one of the most mystifying aspects of the communications process. However, according to a survey conducted by PA Consulting, corporate mergers where the acquirer recognises that cultural differences exist, regardless of how similar the businesses may appear, deliver significantly greater shareholder value than those where the acquirer believes no cultural differences exist. Cross-party integration teams can improve returns. For example, where 40 percent or more of the integration team are from the target organisation, returns increase significantly. The people factor is undeniable because where human resource issues were seen as important, returns were also markedly higher.

It is easier to diagnose difficulties if you can review differences upfront by developing a cultural profile of the target company and identify how it meshes or clashes with the profile of the acquiring company. Before acquiring, it is really important that you decide and communicate what the culture should be, and provide a clear picture of what's expected. For example:

• Prepare a detailed integration plan that takes into account cultural differences.
  
• Build an elite integration team.
  
• Select the integration team from the acquiring business unit.
  
• Give managers in the new company an early voice.
  
• Arrange cooperation between the due diligence and integration teams.
  
• Be reasonably flexible and allow for synergies.
  
• Closely monitor integration progress and review the results.
  
• Be willing to walk away from a cultural mismatch.
  
• Learn to be a flexible owner.
  

Remember, silence spawns harmful rumours. When there is uncertainty about the future of a business, rumours proliferate and production suffers. DAV Management's Enigma Roundtable, 'The Devil is In the Detail, held in May, looked at the future outlook for M&As. Click on the adjacent Related Link to learn about the Roundtable conclusions. Alternatively to read a recent article published in IMIS Magazine in August 2008 entitled: 'Plan Before You Buy' which features DAV's managing director Charlie Mayes' views around M&A's click on the adjacent link.