Acquiring Smaller, Entrepreneurial Companies Successfully

Posted on March 24, 2016

Acquiring Smaller, Entrepreneurial Companies Successfully

Acquisitions happen across the world on a daily basis as a primary growth strategy. Fast-growing startups or small-sized companies are bought by more established, global players in the hunt for new talent, access to new markets, clients, or R&D, and a wider portfolio of products or services.

For the two parties involved in such an M&A deal, the cultures can often be at odds with each other. In our previous blog on M&A, we highlighted the tendency of leaders to “overestimate similarities, underestimate differences and engage in ‘groupthink.’” (Gundling, Cvitkovich & Caldwell, 2015), and we explored the need to be mindful of three levels of culture – national, organizational, and team – for an international acquisition to succeed.

Despite our knowledge of the impact of cultural changes, large corporations still hold onto their “one-size fits all” strategies while trying to acquire innovation and creativity through start-up/small-sized acquisitions. Call it what you like, the clash of cultures during the integration process has a cascading effect when things go astray.

The number one cause of failure among international mergers and acquisitions is employee integration: the human element.

NumberOneCauseOfFailedMA_quoteThe talent you have acquired the company for may leave because of a mismatch of values. Fear of layoffs or quick restructuring may strangle innovation and creativity. The clients may no longer be satisfied with the streamlined processes of a multinational player as opposed to the prior personal relationship they had with the start-up business.

It becomes clear that, while the strategic decision for an acquisition of a small-sized business was taken by a handful of executives, the transformation and integration affect all employees involved.

How can you avoid the diamond in the rough turning into black coal?

Asking what could change the value of an acquisition if the integration process fails is vital to identify core focus areas that need to be handled cautiously. There is no cookie-cutter recipe for integration, only the individual analyses of the two companies, their distinctive corporate and team cultures, and the underlying national cultural values that each of them brings to the (negotiation) table.

To learn more about our approach and mindset to international M&A deals, read this case study of a large multinational organization acquiring a smaller family-run business in a different region of the world.

Case Study

U.S.-Based Multinational Manufacturing Firm Successfully Integrates Small Israeli Business

Challenge:
One of the world’s largest manufacturing companies, based in the Midwest of the U.S., had an opportunity to acquire an Israeli firm with key technology, distribution, and market share. Importantly, the Israeli firm had access to markets in China and India that the U.S. firm did not have. The U.S.-based management team were eager to move quickly on the deal as part of their top-line growth M&A strategy; however, they were concerned about the integration of the Tel Aviv-based organization. This smaller firm was a Kibbutzim, a close-knit, family-run company with its own unique culture (both corporate and Israeli). The US firm, with its global procedures, policies, and systems, needed to tread carefully with this smaller, more entrepreneurial and collective company, so as to not overwhelm and push out its people.

Solution:
Aperian Global was engaged to help the U.S. firm and its integration team to prepare more fully for the acquisition. This involved interviewing (in Hebrew) several of the key employees of the Israeli company on location at their factory. Positioned as an agnostic third party, this exercise enabled Aperian Global to learn which employees were absolutely critical to remain in place in order for the deal valuation to hold as expected. These employees, many nervous about the acquisition and pending change, had enormous loyalty from others in the organization, and with key customers in their distribution chain.

Results:
After performing a mapping exercise of the assets, best practices, and relationships of both organizations, Aperian Global was able to recommend specific strategies to ensure a smooth integration. For example, in the course of our interviews, we discovered that one influential leader in the Israeli firm had the personal relationships that enabled the firm’s access in India and China. Making sure this person had face in the new organization, and was shown respect during the integration, was crucial in order for the asset value of those markets to remain. The acquiring firm was also better able to prepare the U.S. manager who was sent to Israel on assignment to drive the integration.

Are you currently involved in an international Merger & Acquisition process? Find out how we can help your integration process and ask questions that go beyond the usual financial and strategic concerns here.

Further Reading:

Culture: The Forgotten Link in M&A

An interview with Lenovo’s Chief Diversity Officer Yolanda Lee Conyers on their M&A approach

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