– Raju Rayamajhi
Merger and acquisition (M&A) is defined as a consolidation of companies. A merger is the combination of two or more than two companies to form one while acquisition is one or more than one company taken by another.
M&A is one of the crucial aspects of the corporate world. With the objective of wealth and value maximization, companies keep evaluating different opportunities through the route of merger and acquisition. Globalization and fast technological advances demand M&A of companies to sustain in the market. Due to limited market characterized by unhealthy competition among companies M&A has become a regulatory requirement. However, M&A is a challenging job for the top management of companies and in most cases it doesn’t lead to meaningful results. For e.g., according to a study by KPMG, about eighty-three percent of the merger doesn’t boost return for the shareholders. This brings doubt in the widely held belief that the synergy aimed to be attained via M&A may not be valid in all circumstances.
In this context the challenges of Merger and Acquisition are as follows:
Employee Retention: Employees take M&A as a threat. Especially employees of the targeted company feel the acquisition as a threat due to uncertainty about the future of the organization’s direction and feeling of confusion rising from absence of proper communication. A merger brings changes in organizational structure and culture which creates stress and anxiety in the employees who are generally glued to status-quo.
Cultural Challenge: Culture is a set of shared norms, values, and beliefs inside the organization. It is difficult for the merged company to carry the culture of the previous organization because the employee seldom replaces the underlying culture and values. There are various types of leadership styles adopted by different companies. Similarly, decision-making styles and strategies differ in terms of size and nature of the organization. A sudden shift in leadership and decision making style brings disruption and unease to a company. Apart from the differences in corporate cultures, there is also an issue of trust. Employees on both sides feel reluctant to work with each other.
Integration: In the process of M&A, integration is very important. Management of new organization has to communicate effectively with employees to rebuild trust and discourage any rumors within. Technically, integration comes after a M&A, but that does not mean it should be an afterthought. At every stage of diligence, members of the diligence team need to be taking notes on where various parts of the business can be integrated if and when the transactions are closed.
Commitment and Loyalty: After M&A employees are confused with the new working environment and often lose their commitment to the company. Management has to find new ways to develop a sense of belonging of employees towards the organization by clearly identifying roles, rewards, and appraisals, etc.
Communication Challenge: Communication challenges has been identifies as one of the top factors that cause company synergies to fail. Communicating with employees, empowering them, and creating a thriving culture for all are fundamental to integration. When M&A occur, employees and management are generally left in the dark. Fear and lack of answers deter top management from providing the information that employees need to redirect their actions in the merged company. Rumors fill mystery and vacuums, and employees are left asking questions like: “Why is the organization merging?”; “How will the merger affect my work?”; and “What support will I receive during the merging process?” This lack of proper communication creates distrust and uncertainty in the workplace, leading to lower employee engagement levels. Communicating is a skill that should come naturally, however it can be the hardest skill to learn. When managing any key project, such as M&A, it’s important to keep the employees from both parties informed at all times. Inform the employees of the progress of the integration through different communication channels (emails, intranet, etc). Being aware of the questions, concerns, and fears that employees might have, and, proactively communicating answers, will build transparency and trust, and lead to a successful merger.
To address the aforementioned challenges and thus eliminate unnecessary conflict in the M&A process following strategies can be incorporated.
- Identify the best of the processes, structures, and climate of each of the organizations.
- Identify and begin to develop the leadership competencies that will be needed in the integrated organization.
- Have an integration team with the responsibility that includes participation in all pre-merger work, develop action plans, careful exploration of and planning for likely barriers to success, look at possible resistance and “learning anxiety” issues, etc
- Assess decisions being made about the merger in terms of the statements of mission/primary task and the culture you are trying to create.
- Celebrate success as you go along, be adaptable, refine, innovate, and revise as you go along.
- Keep everyone informed, systematically gather ideas and feedback, provide ways for open dialogue in small group setting about ideas, fears, hopes, and anxieties, deal with rumors openly and quickly , no secret meetings.
(Raju Raya is an Assistant Director at Nepal Rastra Bank)