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Sunday, 23 June 2013

Planning an Acquisition? Make Sure That There Isn't a Clash of Cultures!

Some years ago we had an excellent speaker called Barrie Pearson at my Vistage CEO group.  Barrie was CEO of what he called a corporate finance boutique in the City of London and very successful they were. 

Barrie was a bluff and very amusing Yorkshire man and he didn’t stand on ceremony.  If he felt that something needed to be said, then he said it. 

He was strongly of the opinion that an acquisition of one company by another was fraught with potential difficulties and it needed to be thought through with great care. 

In his opinion, half of all acquisitions fail and half of the rest are not successful.  If his client was looking to sell the business then he strongly recommended that there should be a beauty parade with at least two and preferably three potential suitors. 

It all comes down to the fact that buying or selling a business is a potentially traumatic exercise and because so much depends on  the success of the venture, great care needs to be exercised to eliminate as many of the pitfalls as possible.

Of course, being a very shrewd businessman and from Yorkshire to boot, he knew that retention of his company as adviser would help to solve the problems which arise and more to the point would lead to a satisfactory revenue for his company. 

Certainly one of members at the time sold his business, took all of Barrie’s advice and was able to set up a bidding battle with two potential buyers which led to a very satisfactory outcome. 

However thinking back and to other speakers dealing with the whole subject of business acquisition, I don’t recall many of them who mentioned the culture issue.  Finance, operations, sales and marketing were all covered to a greater or lesser extent in the due diligence process but not the culture of each of the companies involved. 

What is more the question of arm’s length management didn’t seem to rank very highly in the great scheme of things when, in fact, it can pose a real problem for any leader and the team acquiring a business. 

Remember the case some years ago of the Midland Bank which bought a failed bank in California and trusted the existing management to run it and turn it round on their behalf?  It had gone down once and sure enough it went down again.
I was acting as a consultant to a large professional firm which merged with another equally large practice and for at least three years afterwards, people were talking about how “we” used to do things which were better than the new regime. 

The merging of cultures in two businesses is a complex task which has to be carried out with a great deal of care and even compassion so that as many of the staff will accept that change has happened and that it will be for the better. 

We can’t disguise the fact that acquisition frequently leads to a reduction in the headcount and that in turn can have a de-motivating effect on morale, sometimes in both businesses. 

It is curious how the very thought of change can engender the feeling that the effect will be the loss of an individuals’ job and so the whole exercise is perceived as a threat.  Is it any wonder that 75% of all acquisitions are unsuccessful? 

The fact is that a real analysis of the culture of each partner and a sensible comparison exercise can help the leader to understand exactly what changes can be made without difficulty and which changes need to be handled with care. 
An exercise like this can ensure that you are included in the 25% successful deals and as a final note – the word MERGER has not crossed my lips or my computer, simply because there is no such thing.  There will always be a dominant partner so make sure that it is you.
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