Currently, one of the most underrated and poorly executed aspects of mergers and acquisitions is change management. However, what good acquirers realize is that people are their biggest assets because it is people who help companies reach synergy targets and IP goals; therefore, change management practices can be leveraged to identify and prioritize roadblocks to a deal’s success.
In fact, some of the most advanced and comprehensive acquirers routinely use integration centers that revolve around a few core experts along with some part time employees to support integration teams through training, strategy, and tracking. A major component of the work these integration experts all point to is the importance of taking into account company culture and change management. Here we take a comprehensive and realistic look at change management and how it can produce stronger outcomes.
Change management is the discipline of equipping your employees with the desire, knowledge, skills, and abilities to operate in a new way. We like to say M&A change management is change management on steroids because you have more factors and moving parts to worry about, such as the ever important task of engaging employees in a new way of doing business.
Because it is not tangible - we cannot always see what is being done like we can with traditional project management - change management is often overlooked or inadvertently forgotten. Unfortunately, it is when you start seeing what is not happening (people are not embracing new culture, work is not getting done properly, and synergies are not being met) that you realize change management is not being implemented. To combat this, M&A change management needs to be brought to the forefront and differentiated from project management.
Specifically, change management cannot be thought of in terms of tasks and checkmarks, rather it needs to be seen as an approach to make sure the people on both the acquiring side and target side are being “taken care” of across all functions.
Culture is a key bucket of work in M&A change management. Cultural factors have been known to be deal killers; therefore, it is essential to begin considering culture as early as possible during exploration and diligence. Obviously, it can be hard to get access to some of this information early on, but simply paying attention during onsite visits and in conversations with members of the target company can be helpful. For example, consider how well do members of the target company exhibit qualities such as honesty and integrity? If they don’t come across as honest and of the highest ethical standards early on that could be a red flag on how much is actually true in the numbers they report or any information they provide throughout the due diligence stage.
Additionally, and ideally, the acquirer would create and perform a mini cultural survey early on in a deal’s lifecycle. This survey should be about five to eight questions and serve as a way to solicit feedback regarding management, values, and employee norms. An M&A change management professional should be equipped with the skills to assess and manage the cultural considerations.
One of the areas in which change management can garner the largest impact is identifying deal and synergy killers. Using an impact analysis, change management team members can look at areas such as foreseen debt, differences in operational styles, and benefits and bring them to the forefront early on. Once these issues are identified, mitigation can begin, which ultimately gives these roadblocks less destructive power.
When early identification of issues is not wielded as a weapon against roadblocks, small issues can wreak havoc on a deal later on. We have witnessed something as seemingly simple as payroll moving from weekly to biweekly lead to problems and lack of employee retention.
Overall, consider impact and effort when deciding where to start. Once you believe you have fixed an issue, change management teams should check in with both sides to see if employees truly feel/see a difference.
It is essential to remember employees from the target company might be resistant. Remember, they did not ask to come to the purchasing company. Some common feelings and signs of resistance are members of the target company may feel as though the purchasing company is of less value than them, or they are not interested in being a part of a new organization.
Finally, resistance may come about because the purchasing company has not put in the extra effort to truly teach the acquired company about its organization's structure and core practices or how to be successful in the new work environment. These feelings often result in acquired employees not bringing all their energy and talent to the table.
Essentially, change management must include employees from all levels and geographic locations within a company, and it must be taken into account earlier in the M&A process. It is a weighty task and, therefore, ideally should be its own unique role within a company. One of the most vital aspects of M&A Change Management is managing cultural implications, especially because the lack of cultural consideration can kill deals. We must all remember people are our most valuable resource.