What You Can Learn from Successful Mergers & Acquisitions
Business mergers and acquisitions (M&A) can be an effective strategy for growing the bottom line. Companies consolidate to remove excess capacity, increase market access, acquire technology more quickly than it could be built, develop new businesses, and improve the target company’s performance.
Most often, companies merge or acquire because they want to grow, with the goal of providing new top line revenue or bottom line profitability. When the market perceives an M&A strategy sound, a company’s stock price can be rewarded. Companies today exist in a global marketplace and are no longer bound by region or country. Today’s most successful companies merge and acquire businesses across country borders.
The key to sustaining the positive benefits of any merger or acquisition pursuit is ensuring the post-merger integration is successful. If so, then profitable growth can follow, and the deal valuation is achieved. Some mergers or acquisitions are focused simply on obtaining a technology. However, there are many others for which retaining the acquired talent is crucial because employees themselves have critical knowledge, skills, and customer relationships that determine the value of the acquisition. When this is the case, companies need to motivate and engage employees through the process, which is easier said than done. The new combined entity, and the people and teams within, can be more innovative and collaborative if integration efforts go well.
In this article, we’ll review a few of the most successful mergers, as well as one that didn’t reach its potential. By studying failed and successful M&A examples, you can get a better understanding of how to achieve success — tips you can apply to your company’s future growth strategies.
The Most Successful Mergers
The following three case studies show how companies achieved long-term success with M&As that ha
d global reach. Each case study highlights the challenges the companies were facing, as well as the M&A processes they designed to meet those challenges.
Procter & Gamble Purchased Gillette
In 2005, Procter & Gamble (P&G) wanted to spark internal growth and innovation by incorporating Gillette’s processes into its own. A key to this integration was retaining top talent from the Gillette pool, which was no easy task as headhunters went after Gillette employees.
In addition to retaining top Gillette talent, P&G was also facing a range of business disruptions, including government inquiries in Massachusetts, Gillette’s home state, and issues in India that erupted as a reaction to distributor changes.
P&G tackled these challenges head on with a solid strategy. They took the time to research how these two companies could merge their best processes and talent into one profit-boosting entity. They did this by forming about 100 global integration teams.
Typically, each team would have two executives, one from each company, who were responsible for similar functions. In line with this spirit of collaboration, Gillette employees were allowed and, in some cases, such as in China, were encouraged to continue using their own processes until they could receive training on P&G’s methods.
Another important key to this merging of talent was taking it slow. Instead of rating Gillette employees on performance as normal, during the corporate integration, P&G gave the Gillette employees a year before they would review performance and tie bonuses to the outcome.
To successfully create an atmosphere of collaboration took significant communication. They had to clearly communicate a message of inclusion. The communication component of their merger and acquisition process included carefully crafting all internal and external communication around the term “merger,” rather than “acquisition,” and holding town-hall-style meetings that drove home their principles.
Throughout it all, P&G emphasized the goal of joining the best of both companies. The idea of replacing under-performing P&G employees with better-performing Gillette talent was a bold strategy for this promote-within company. It paid off: P&G leaders were supportive of this initiative, and most all employees found motivation in becoming even better by learning from the best talent at Gillette.
P&G’s commitment to merging and learning from Gillette was carried out carefully across their global holdings. P&G created a mergers and acquisitions process that:
- Smoothed the transition period — In Brazil, for example, the general manager of the company for P&G shut down the office and reworked employee placement. On Monday morning, employees from both companies arrived to new offices on different floors instead of just placing Gillette employees into the already established layout. This signaled that P&G was willing to change as well, and both teams would work together in creating success for the new company.
- Involved internal stakeholders in their decision-making process — The decision-making was not limited to the highest-level executives. Instead, P&G welcomed Gillette with a role in the process.
- Made the merger easier for Gillette employees — Employees who joined P&G from previous business mergers reached out with advice to the Gillette employees through intranet postings. P&G also worked hard to establish cross-company connections, matching seasoned employees with the new Gillette employees. Through training programs that emphasized soft skills, such as network- and relationship-building, Gillette employees learned more about the purpose, values and principles driving P&G.
- Considered the practices and procedures in each country — Not only did P&G take the important step of establishing appropriate practices and procedures in each country, they also sought to actively incorporate any of Gillette’s processes that were working better than established P&G ones. Each country’s staff worked together to merge the best processes of both companies, investing both teams in the process. This motivated all staff and drove home P&G’s commitment to merging the best of both companies.
With this calculated approach to merging two companies into a single, stronger one, P&G experienced significant success. They managed to retain more talent from the acquired team than most buyers have been able to — 90 percent of Gillette’s top managers accepted their new job offers. P&G met their revenue and cost goals within a year and enjoyed ongoing growth.
Mexico-Based CEMEX Purchased RMC in Europe
The two companies involved in this merger were CEMEX, a building materials company with headquarters in Mexico, and RMC, a multinational company headquartered in Egham, United Kingdom that produced ready mixed concrete, quarrying and other concrete products.
In 2005, CEMEX’s goal was to double its size and market share by purchasing RMC. This goal was in line with the M&A trend of emerging-market companies acquiring established ones. Examples of this trend include the acquisition of popular U.K. tea brand Tetley by the lesser-established Indian company Tata Tea and the 2003 acquisition of Korean-based Daewoo vehicle company by Indian Tata Motors. The trend continued in 2005, with Lenovo acquiring IBM’s personal computer business. The merger accelerated Lenovo’s technology and brand recognition.
CEMEX faced some significant challenges with this merger, specifically with RMC’s assessment of CEMEX; many RMC employees saw CEMEX as an emerging market firm who came in to absorb a major business with plenty of share in the developed markets.
With this negative view, the objective of getting the acquisition’s employees to assimilate into CEMEX’s established processes and global standards was no small feat. CEMEX had to find a way to share its knowledge with a team who didn’t view them as industry leaders.
The pressure for early indications of a successful merger and acquisition added to the challenge. CEMEX knew they needed to prove the validity of this merger to both RMC employees and the London capital markets. The London capital markets had the power to back additional growth with low rates. If CEMEX wanted to continue growing their global presence, they would need to be able to access future capital. CEMEX met the challenge head on by tackling one of the weakest components of RMC: its under-performing cement plant in Rugby, England.
Not only did this cement plant cause a nuisance, interfering with local TV reception, but it also was the cause of health problems due its dust and carbon emissions. Even employees who worked there were ashamed to admit their connection to this highly unpopular cement plant.
CEMEX worked to turn the plant around, making a significant investment in the process, especially the air filtration system. While it wasn’t a necessary step, CEMEX leaders saw the opportunity to improve their environmental reputation.
Revitalizing this cement plant was not an easy task. It required CEMEX leaders to establish a post-merger integration process that:
- Formed the best team for the task — Changing processes is difficult enough for an internal team, but it gets even more complicated in a merger involving teams from two different cultures. CEMEX smoothed the process by sending experienced post-merger integration (PMI) teams to Rugby, as well as experts in quality control and maintenance.
- Fixed problems and trained staff without alienating Rugby colleagues — CEMEX emphasized the role of the PMI team as being temporary. This allayed fears that the Rugby team had. Instead of viewing the PMI team as coming to take their jobs, they saw them as fellow — and temporary — team members who would work alongside them. The PMI members took the time to listen to their Rugby counterparts, actively seeking their advice. The CEMEX experts also recommended keeping all local managers who were interested in retaining their positions.
- Trained Rugby employees on the new corporate culture — CEMEX made the right training investment in Rugby employees. They sent them to CEMEX plants in the United States, Mexico and Germany to obtain first-hand experience with CEMEX ethics, technology and management practices. Once Rugby employees better understood the principals and processes behind CEMEX, they were motivated to join the team, igniting change among other Rugby employees when they returned.
- Provided effective cross-cultural training for CEMEX employees — The CEMEX PMI team was comprised of employees from around the globe, including Mexico, Spain, Hungary, Brazil, and Uruguay. Insightfully, CEMEX saw the challenges of working with different cultures and viewed it as an opportunity to bridge cultural gaps. The PMI team underwent cross-cultural training in British culture, learning what was accepted and how they needed to adjust their current processes to align with expectations.
CEMEX’s commitment to respecting Rugby and educating their team on cultural differences was key to their success. By the end of the first quarter, they saw an increase in safety and productivity, while achieving a decrease in carbon emissions.
Perhaps even more importantly, the resistance to the merger that many RMC employees felt was replaced by a spirit of teamwork and motivation. RMC employees were invested in CEMEX’s vision and plan for the future.
CEMEX modeled their mergers and acquisitions integration process after the Rugby plant as they acquired new operations throughout Europe. They deployed almost 800 experts on PMI assignments and experienced similar integration success. Through these successful integrations, they developed an internal, streamlined processes to identify cost-saving and best-practices in transfer opportunities.
France-Based Publicis Groupe Acquired Saatchi & Saatchi
Now the fourth-largest communications and advertising company in the world, Publicis Groupe can point to their acquisition of cash-strapped Saatchi & Saatchi in 2000 as a key to their success. They wanted to secure future growth for their company by acquiring Saatchi.
One of the biggest challenges Publicis faced was retaining the top talent at Saatchi. Following the control change, top Saatchi employees could cash out their stock on favorable terms. This is typical with M&A transactions — shareholders of the target company have the option to cash out at significant premiums, especially when transactions are all-cash deals. When the acquiring company pays with a mix of cash and stocks, the shareholders of the target company hold a stake in the new merged company, giving them a vested interest in its success.
Another factor complicating matters was the established culture at Saatchi. Saatchi’s company identity revolved around creative excellence and independence. Moreover, the culture of French Publicis clashed with the culture of the British company. Employees of Saatchi had difficulty accepting a French company buying them out.
Making Saatchi employees feel like becoming a part of Publicis and investing in the creation of a new company together became primary goals for the merger. They achieved a successful merger thanks to a plan that:
- Enlisted the participation of Saatchi employees — At the Publicis welcoming retreat, Saatchi played a leading role in the meeting. Instead of expecting Saatchi to assimilate into their corporate culture, Publicis made it clear that Saatchi would be integral to forming this new company.
- Adopted Saatchi’s best practices — Publicis drove home their view of Saatchi employees as team members by announcing they would adopt the Saatchi operating system, and distributed the Saatchi-written management book to all employees. They also announced Publicis managers would have the opportunity to learn from Saatchi’s top talent through training sessions.
- Established Saatchi’s ongoing role in the future of the company — Publicis established Saatchi as running parallel, along with other agency networks. To further strengthen this new role, Saatchi’s CEO joined the operating committee at Publicis.
These committed efforts to respecting the culture of Saatchi paid off. Saatchi employees were motivated to join the Publicis mission, despite their pride and desire for autonomy. Publicis continued this method of integration when they added digital-marketing agency Digitas to their company. They emphasized the central role the acquired company would play in the future of the new company, instilling a sense of investment and excitement.
Learning From Mergers That Didn’t Work
While we can learn what to do when we study successful company mergers, reviewing mergers that didn’t work can also reveal important insights. One of the most famous international mergers to end in failure was the Daimler-Benz merger with Chrysler in 1998. Originally marketed as a “merger of equals,” it didn’t take long for employees to realize this was not the case.
When Daimler-Benz sought a merger with U.S. automaker Chrysler, they wanted to create a car-making leader that spanned across the Atlantic. Less than 10 years later, however, they sold the venture for $30 billion less than they paid for it.
What went wrong? Looking back, experts point to differences in culture — both national and corporate — that led to the failed partnership. Unlike other successful mergers, this one lacked a strategy that:
- Addressed the two different cultures of each company — While Chrysler’s company identity revolved around being diverse, daring and creative, German Daimler-Benz was safe, efficient and conservative. Instead of working to bring these two visions and identities together — or defining how they could exist in unison — Daimler-Benz neglected to address the issue.
- Established mutual trust and respect — A key of successful mergers and acquisitions is creating mutual trust and respect among the two different companies. Through communications and actions, other companies made it a point to highlight the importance of the acquired company talent, seeking advice and establishing teams that worked together for the greater good. In this case, however, both sides were reluctant to work together and share their resources. Daimler-Benz exacerbated this issue by trying to dictate the terms of how the new company should work. Seeing key Chrysler executives resigning or being replaced by Daimler-Benz counterparts attributed to the breakdown of a “merger of equals” philosophy, resulting in even more lost trust.
- Incorporated best practices from the acquired company — Successful mergers don’t seek to replace a company. Instead, the goal is to make a company better by adopting new talent, processes and philosophies. Daimler-Benz had a hierarchy that was based on respect for authority and a clear chain of command. Chrysler’s was much different. They took a team-oriented approach. Daimler-Benz didn’t try to incorporate any of the best practices of Chrysler, which led to a complete clash in operating philosophies.
Post-Merger Integration: Keys to Successful M&As
Without a strong cultural-integration plan, mergers and acquisitions fail to deliver long-term value. An effective cultural-integration plan must overcome the most common obstacle to a successful merger: how employees respond. If the employees are in shock, full of anxiety, and protest the merger, the company will experience a host of problems, from supplier unrest to losing customers and being disapproved by governments. Additionally, when the human integration efforts fail, many key employees will leave, often with skills and knowledge that are not easily replaced. When that human capital walks out the door — most likely to a competitor — the asset value of the deal itself is compromised.
By effectively merging cultures, you create value.
While you can define value in different ways, from profits to employee happiness, the point remains unchanged: If you are merging your company with another, you want it to be more valuable than before.
A Dedicated Integration Team
To ensure your company’s merger brings value to all invested parties, care must be taken to identify and train leaders with emotional intelligence and agility around culture — both corporate culture and national culture. The goal of your integration team is to successfully identify and integrate the new talent. Your team needs to:
- Help the often highly emotional and culturally diverse employees navigate through the process
- Communicate the change effectively and establish processes that are transparent
- Act as hosts welcoming the new employees
- Show they are eager to learn from the acquired company
- Build relationships that cross cultural differences
- Work closely with HR to build positive connections across functions and informal networks
A Complete Integration of the Two Companies
Without integrating the two companies fully, you have two separate entities that are losing out on valuable connections. You have to work hard to discover, stimulate and institutionalize innovation. The new enterprise is most likely to succeed when it optimizes the resources from both companies. To fully integrate, you need to:
- Identify the processes that offer the best value and adopt them
- Consider those systems that need to be consolidated and centrally run (financial systems) vs. those that can have some autonomy.
- Provide training to employees on new processes and technologies that result from the integration
- View the integration in three steps: running the two companies side by side, then combining into one company in which you work to unify cultures, and finally creating the new company that works together for a new future
A Definition of the New Entity’s Corporate Culture
While the success of a merger is defined in profit numbers, the people are the driving force behind the performance. To effectively define your new corporate culture, you should:
- Recognize differences in the two companies’ corporate cultures and take steps to bridge the gap
- Identify the new combined company’s values, attitude, and voice
- Set goals and objectives for the merger and communicate them clearly for managers to carry out
A Communication Plan
Once you’ve identified how the integration will proceed, you need to clearly communicate it to all invested parties. When there is a void of knowledge about what is happening, employees are left to fill in the gaps with speculation is are often fueled by anxiety. To alleviate fears, build trust and motivate your new combined team, you need to:
- Provide a human face behind the new company that employees can relate to
- Offer a consistent message
- Provide opportunities for employees to engage in the discussion, such as town-hall-style meetings
- Communicate regularly with updates on the process and notices of upcoming changes
Companies involved in any global merger or acquisition activity face the added challenge of integrating national cultural differences in addition to corporate or organizational differences. When other national cultures are involved, one can expect additional complexity around the following activities, among others:
- Communication style (indirect vs. direct)
- Decision-making (risk vs. certainty)
- Group and team structure (egalitarian vs. hierarchical status)
One of the first steps to ensure that national cultural differences do not become an impediment to a merger is to recognize the differences early on.
This is a step that should take place before the merger is announced, and mere recognition is not enough. Having members of the integration team be fully prepared to recognize and leverage the diversity among the combined employees is critical. This may require some cultural awareness training during the integration phase for both sides.
Through effective cross-cultural training, employees:
- Become aware of their own work style vs. that of colleagues from outside their home country
- Will form more highly productive teams and functional groups
- Have actionable advice on how to communicate with peers from other countries
Early commitment by management to learn as much as possible about the various culture(s) of a target company is key. Many mergers and acquisitions are planned with financial and operational strategy in mind, and HR is often the last to get involved. And yet, the human integration piece is the most difficult. Those involved will benefit from having a strategy mapped to the cultural differences, both before and after the deal is signed. As part of this, a plan to educate managers on how to address and leverage these cultural gaps (corporate and national) will make the transition much smoother and faster. With clear communication based upon a commitment to integrate the best of both organizations, the new company will be stronger and more innovative for the long term.
Cross-Cultural Training and Consultation for M&A Deals
With more than 170 consultants and nearly 4,300 country specialists, Aperian Global has the power to ensure a smoother merger.
Gundling, E., & Caldwell, C. (2015). Leading Across New Borders: How to Succeed as the Center Shifts. Wiley.