Why is good communication essential to successful acquisitions integrations ?
The communication role needs to begin during the preliminary stages to set the scene. Too often the communication doesn’t start until too late. Mergers and acquisitions go through three broad phases. « Which phase bears the greatest risk of failure? »:
Strategy development, target shortlisting, due diligence – 30%
Negotiation and closing the deal – 17%
Post-merger integration – 53%
This response shows that the most important time for a merger or takeover is when the deal has been formalized and the more difficult stage of ‘bedding down’ the process has started, requiring intensive communication. However, there is a case that communication should start early to pave the way for internal acceptance and post-merger integration.
Overwhelming experience indicates directly or indirectly that people issues are the main reason for takeover failures. And communication is central to the people issues.
Management of the human side of the merger is the real key to maximizing the value of the deal.
Cultural incompatibility is consistently the biggest barrier to integration.
Out of three key merger factors – people, processes and systems – only people issues made a difference to the success of mergers.
Effective employee communication is the first or second most important issue emerging in all studies of mergers. Internal communication and culture changes are identified as the hardest to achieve, but the most important in merger success.
They are generally under-resourced in post-merger integration, and are often absent before the deal and the due diligence phases. Interestingly, customer issues are also extremely poorly resourced.
How could management do this? And how could highly paid management consultants let this happen? The two most important constituencies to look after – customers and employees – have largely been ignored. It defies logic!
Most of the merger communication budgets around the world have been spent on external communication rather than employee communication!
Regardless of the brilliance of the vision and the fit in a merger, the subsequent success of the deal depends mostly on the employees. They are the ones whose day-to-day actions can make a merger work or can sink it after the deal is done.
A sufficient investment in internal communication is the link in keeping the employee attitudes positive towards the changes brought about by the merger. Gamifying the employee experience, specifically at this moment is key to success.
Even before a formal merger or acquisition is underway, employees often become aware from indirect information or by chance that something is in the air. It is human nature to want to know what is happening. If they feel management is keeping information from them, quite understandably they start to feel anxious.
When people are uncertain, they start to speculate about the clues in front of them. Invariably this interpretation of clues becomes paranoia as they chat to workmates and quickly develop a view that a management conspiring the worst. The grapevine goes overtime with rumors. Productivity starts to drop as staff waste time in discussing rumors and losing some of their motivation. With well-developed rumors, some staff actually start to leave the company before, as they believe, the bad news hits.
When a merger is announced, staff in the acquiring company may not feel concerned initially. They belong to the new parent and don’t anticipate much change. This sense of security is not always justified because the process of establishing the new joint organization can reveal areas of the acquiring company that could be improved.
If two roughly equal parties merge, change will hit both sides. Employees will become anxious about their jobs. They will suddenly have to confront:
- loss of status and influence;
- uncertainty about the employer’s plans;
- a fight for individual survival as fear of job cuts takes hold;
- increased workloads because some people leave voluntarily or involuntarily;
- a spillover effect into individuals’ lives.
Effective strategic communication plays a key role in addressing these issues, but is difficult and complex:
- Effective communication demands intensive time from senior management at a time when they may be totally devoted to the technical and financial aspects of the deal, and may not have sufficiently considered the impact on others.
- Effective communication requires training because many managers have never received guidance on good interpersonal communication practices.
- Communication doesn’t come easily to many managers who throughout most their careers have dealt almost entirely with hard facts and figures, not the ‘soft’ people issues – these managers may not be good enough as leaders.
- Many managers are uncomfortable about giving tough messages to their staff, and being honest with them about bad news of job cuts or site closures.
- Mergers involve many technical and complex issues required by law, the stock exchange, and regulatory bodies. Communication is not legally required and so it is an easy area to drop down the priority list.
- Communication is not easily quantified and measured, which makes it difficult to grapple with when merger budgets are being considered.
- The communication function isn’t always represented at a sufficiently high level within the organization, and even then the head of the function may not be strategically minded.