M&A Integration: Culture

This topic contains 3 replies, has 4 voices, and was last updated by  Rodney Satterwhite 1 week, 5 days ago.

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  • #114299

    stacy hall
    Participant

    Can you share any examples where culture played a key role in the success or failure of integration? I have read a few but have not had experience.

    #114613

    cjohnson
    Participant

    I can give a vivid example from my experience. Our company acquired a company (NewCo) that was in an adjacent geography. Our markets overlapped slightly and as a result we considered ourselves competitors. NewCo had 4 locations, each managed by a different partner.

    At the time, our integration process was immature and mostly focused on the hard success factors. We felt we were the leading company in our industry and that the employees from NewCo would be happy to join. We did not have cultural assessment tools or a good understanding of how soft success factors can impact an acquisition.

    One Day 1, one of our senior managers arrived at one of the NewCo locations and was greeted by a group of employees that had covered their uniform name tags with a piece of tape with a number written on it. This signified that they felt they had been acquired by a heartless large company that would treat them as a number, not as a person. This was our first clue that cultural integration would be a challenge. What we did not realize was:
    1) As former competitors, NewCo had created a negative image of our company. The employees did not want to accept their company had been acquired by the “enemy”.
    2) Each location had a different culture because the 4 partners operated independently from each other. We thought we were buying one company with one culture when in fact we were buying one company with 4 cultures. The employees from each location did not even like each other. This created another layer of complexity for the cultural integration.

    These challenges were definitely detrimental to the success of our acquisition. Ultimately, we succeeded in generating the targeted value, but this was delayed at least 2 years until we addressed the soft success factors.

    #114631

    Natalie Trabert
    Participant

    I had a client that I began working with 18 months after they had acquired a company. The company that was acquired focused on manufacturing and the acquirer was a technology company.
    The two cultures clashed. One (the acquired) was what I would call a “control” culture- risk averse, slow to make decisions, lots of standardization, lower-than-market pay, command and control leadership- with a customer promise of predictability and dependability.
    The acquiring company had a culture of “best-in-class”- a culture that thrives on innovation, collaboration, competition, expertise. The mindset was “fail fast and fail forward”,
    Within 6 months of the acquisition- more than 80% of the senior leadership team had left. Morale was extremely low. The acquiring company employees perceived the acquired company as “old school”- not willing to change, resistant, skeptical- bad attitudes. The acquired company employees viewed the acquirer as reckless, arrogant, not valuing institutional knowledge.
    Not only did this result in low morale, silo’s, turf wars, etc…but they lost key customers.
    The biggest issue was that they did not have a plan for integration. They were still operating using the branding (two different companies) from before the acquisition- even 18 months after close.
    They did not consider how the integration would affect customers let alone employees. The thinking was that they would allow the acquired company to continue to operate autonomously. This however-did not work.

    #114639

    Rodney Satterwhite
    Participant

    I was at Time Warner when AOL bought us (one of the largest M&A deals ever). A disaster where the vast majority of the problem was the failure in realizing how different the cultures were and how much time and leadership it would take create a new pluralistic culture. Decision making, motivation and leadership style clashes caused massive confusion as well as differing business model where eyeballs were more valuable that product consumption, which lead to a series of initiatives harmful to Time Warner very corporate brands — Something as simple as converting from Outlook to AOL as our email systems was so disruptive. Making well established brands look like a start up.

    Aside from the culture TW executive stock options were underwater after a couple quarter with no chance of recovering during those execs tenure.

    We quickly cycle through the new leadership team, which were largely AOL folks plus the original CEO of TW.

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