What skills does it take to "manage" cross-cultural M&A?

Résumé du document

Mergers and acquisitions continue in spite of an alarming failure rate as they rarely manage to benefit the shareholders. Most completed takeovers damage one party: the company making the acquisition. Many studies conducted have reached similar conclusions: around 65% of takeovers harm the interests of the shareholders of an acquiring company. They do, however, often reward the shareholders of the acquired company. Indeed, most of failed mergers suffer from poor implementation, and in fifty percent of the cases, senior management fails to take into account the different cultures of the companies involved. Most mergers are based on the idea of "let's increase revenues", but the company must have an efficient management team to succeed in that process. The nature of the problem is not so much that there is an open conflict between the two sides. It is that the cultures do not meld quickly enough to take advantage of the opportunities. In the meantime, the market will move on. Many consultants refer to how little time companies spend, before a merger, thinking about whether their organisations are compatible. The benefits of mergers are usually couched in financial or commercial terms: cost-savings can be made or the two sides have complementary businesses that will allow them to increase revenues.

Extraits

[...] Critical notions to be envisaged during assessment 1. The problem of complementarity of corporate cultures, openness and similarity in business values to build trust across national cultural differences Differences in top management styles have a negative impact on performance even if there is a high level of post-integration. Cultural distance increases the complexity of issues (i.e. the problem of communication when the language is different). The degrees of compatibility depend on the target's specific national cultural characteristics and will influence a target company's responses during the integration phase. [...]

[...] The question we chose to work on is that of the skills necessary to an M&A. We have envisaged the word manage” in both of its meanings, in order words as succeed” and thus privileging the point of view of a board of directors confronted to a cross- cultural in the shape of recommendations concerning each stage of a merger : ASSESSMENT, NEGOTIATION, IMPLEMENTATION. Assessment stage What do we mean by “assessment” ? Assessment is a pre-evaluation concerning the degree of fit between the merging companies' values, managerial styles and personalities and their ability of cooperation, which can be measured through first-hand previous common working experiences. [...]

[...] We are convinced that defining in advance what success means for the merging companies is already part of their success to come, part of the durability of their union. We all interested ourselves for mergers because, statistically, an executive has nowadays 100% chance to be, at least once in his professional life, concerned by a merger, the firm he works for being acquired or acquiring another one. Studying Daimler-Chrysler, Renault-Nissan and Air- France-KLM, and confronting those three examples to different theories about mergers, has enabled us to understand and work on the deep and intrinsic relationship which exists between mergers and corporate culture in every firm, especially as these three M&As are different in many ways : they have either worked out, failed, or not been implemented yet. [...]

[...] Indeed, without such an attention, the merger has very little chance to be successful, partly due to a strong negative reaction of its employees. One must never underestimate the importance of psychological criteria when dealing with a merger, be it in small or big companies. Communication is determining between all the levels of the hierarchy, because fears and expectations of employees cannot be left apart without jeopardising the productivity of the merging firms. If so, the merger would be a failure, and definitely useless. [...]

[...] In KLM, the CEO Leo Van Wijk explained the coming agreement to KLM's 250 senior executives and to the Dutch government Evaluating fears Both the French and the Dutch trade-unions such as UNSA or CFDT-Air France fear : - that the human factor might not be taken into account - that would-be synergies be inferior to what they are supposed to be - the uncertainty around the group's revenue in 5 years time - a quest for hyper-profitability (lay offs, relocation, plant closings ) Criticism in the Netherlands shows that this merger is considered as the loss of a national symbol Defining the status of the employees - KLM's employees are due to be protected at least for 5 years but those of Air-France also want to have the same advantages concerning job security - Lay-offs will be led in KLM 5. Choosing deadlines Air France-KLM : synergies are expected to occur in 5 years time so it is a medium-term vision of business. DaimlerChrysler : between Jurgen Schrempp's first meeting with Bob Eaton and the agreement, only 5 months went by. Implementation stage Why is the implementation phase important ? thing lies in execution. Implementation. [...]