J.P Morgan’s latest annual report on cross-border mergers and acquisitions states that despite a number of headwinds, cross-border transactions will provide an important source of value creation for corporations in 2017, as companies continue to look to new regions for exposure to different economic, market and consumer dynamics.
Although its outbound interest may be curbed in 2017 by foreign jurisdictions seeking greater inbound reciprocity, China in particular has seen very strong growth in recent years.
And yet many cross-border deals (some say more than 80%!) fail to create real value for shareholders. The reason often given is ‘cultural issues.’
The Economist Intelligence Unit’s report from 2012, Competing Across Borders, found that while around 90% of CEOs saw that cross-cultural issues were of great importance, only around one third did anything significant about it.
Some years ago I ran a cross-cultural training session with a group of M&A directors from some of Europe’s largest companies, and asked them ‘Why?’ The unanimous response was ‘We don’t know what to do, or what to measure…’
If we look at a summary – under 4 headings – of some of the challenges of cross-border M&As by Mark Jamrozinski, Managing partner, M&A at Deloitte in Canada, some things are clearly easier to measure, and therefore manage, than others:
Synergies: quality of financial figures, complexity of synergy goals, execution plan viability
Structure: differences in organizational and management structure
People: realignment at the executive level, changes at a managerial level, extent and direction of downsizing, cultural differences
Project management: project management lacks expertise and has limited human resource capacity, company management’s lack of M&A experience, specifically
Of these, probably the people issues, and especially ‘cultural differences’ are the hardest of all to quantify and yet, as Einstein said: ‘what can be counted may not count, and what counts often can’t be counted…’
And yet perceptions – both self-perceptions and perceptions of others – can be measured. Key areas for ‘gap-analysis’ in a corporate M&A are communication, behaviour and values and beliefs. One can then work with the results in facilitated workshops with transition teams, comparing the acquiring organisation’s and the legacy organisation’s culture to try and identify the ‘cultural hot-spots’: where the biggest challenges and divergent perceptions lie.
For instance – what are our attitudes to hierarchy, mistakes, innovation v tradition, ethics, health and safety? How do we communicate, lead, motivate and make decisions? What challenges may there be in living our corporate values for the acquired organisation? For instance if our corporate culture wants staff to challenge upwards, and we acquire a company from a hierarchical culture, how can we embolden new employees to do that? Where do we have common ground and goals?
Once all this has been mapped, the key questions are ‘how are we going to bridge the gaps?’ and ‘how to integrate the best of both organisations, so that 1+1 = more than 2?’
If you would like to learn more about managing the fuzzy, people-related challenges of cross-border M&A’s and how we can help, drop me a line at michael.gates@rlcglobal.com
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