Putting Culture at the Heart of the M&A Process

The importance of driving cultural values internally and externally during a merger or acquisition

In the U.S., mergers & acquisitions forge ahead at a record pace with more than 15,000 deals in 2017, a 12.2% increase over the previous year.”
– Institute For Mergers, Acquisitions and Alliances

It’s a reality of modern life. Companies that consumers have come to know and love may merge or get bought by other companies. From an industry standpoint, a mergers and acquisitions can solve for a number of business challenges – helping companies scale, providing a different set of products or services, diversifying their financial risk, and increasing market share in a sector among many other considerations. But for consumers, the brand that they have a relationship with may change, and change is hard. Will my favorite banker still work at my local branch? Will the product I love still be available? What about price – is that going up because of a merger? Are the terms of service still in effect with the newly merged company?

If it’s hard for consumers to wrap their heads around change, just imagine what it’s like for employees. Will I be downsized? Will I have to reapply for my same position? Will things change so much that I don’t recognize my company anymore? What’s going to happen to my coworkers? As we have often said, employees are a company’s best advocate. These brand ambassadors are on the front line delivering brand promise to consumers at every touch point. If a merger or acquisition brings staff uncertainty, fear and cynicism, the result will assuredly be felt by consumers. But mergers and acquisitions don’t have to be a time of turmoil. With the right approach and programs, companies can support employees and consumers through the transition. Change can be scary, but it’s also a time of great opportunity.

When Two Worlds Collide

While a “culture clash” is not an inevitability with a merger, the reality is that two institutions with different products, policies and practices are combining forces, which can create friction. But there is a way to grease the wheels: proactive communication. By creating a process with open and straightforward communication that incorporates employee feedback, companies can allay fears, set expectations, and gain buy-in from their vital internal audience. Merging companies need to explain what’s happening, why and what comes next. Importantly, companies also need to listen to employees and actively address their fears and integrate their feedback. It’s not merely amelioration, however. Sometimes there is bad news, and companies need to address it head-on, in order to maintain trust. 

In our experience developing culture programs for clients, one of the best ways to facilitate a trusting relationship is by making employees feel involved in the merger process. Setting up goals and identifying how employees will collaboratively achieve them is crucial to a merger’s success. This is not merely something that is happening to them, but rather is something that they’re actively involved in creating together. Because the reality is that the new merged entity is made up of people who will deliver on a brand’s promise or not.  While many merging companies develop teams to address what the merger looks like through the eyes of the impacted consumer, we advocate for the development of culture programs with an eye toward how the merger will impact the employee.

Any merger creates a challenge to combine cultures – even in the credit union industry. We had just completed a successful rebranding with Adrenaline a few months prior to the merger, so we were excited to share the details of what our brand is all about. The culture training was a way to show our new employees how we expect them to serve members, as well as give them the tools to do so. Articulating our expectations in a group setting let everyone know that we hold all employees to the same standard. Plus, it was fun!”
– Jennifer Burns, Chief Marketing Officer, We Florida Financial

Customer Retention 

According to Gallup, “History is filled with cautionary tales of brilliant business mergers turning into disaster. The historic $164 billion merger of Time Warner and AOL in 2001 is now considered by Time Warner’s current CEO to be ‘the biggest mistake in corporate history.’ Among the many factors that led to its $99 billion loss in the year following the deal, it is widely agreed that an incompatible and antagonistic cultural divide was a factor.” In banking – where M&A activity is hitting a fevered pitch – the loss of customers can reach as much as 20-30% which can often not be made up by increased institutional scale. In fact, a J.D. Power and Associates survey found the likelihood of switching banks intensifies by up to three times post-merger. That’s a lot of collateral damage.

For most businesses, focusing on customers first is part of the natural course of business. What may not be so instinctive is the focus on customers and staff during a period of heightened change. How are two individual brands set to merge their operations, staff, products and services, all while continuing to serve up positive customer experiences during the merger and beyond? Again, communication is at the heart of success. Sharing customer-facing information about the benefits of the merger and service and policy modifications well in advance of any change implementation will help reduce resistance. Even if there are changes, customers can feel like they’re informed and empowered during the transformation. 

Another vital consideration is ongoing staff training to ensure a smooth transition. Brands will need plentiful customer-service and staffing to answer questions and provide support for nervous customers. If functional teams are developed – as we recommend – leaders can see how changes intersect both from a customer and staff viewpoint and can train for filling in the gaps. Programs that identify and incentivize ideal employee behaviors will be necessary, but equally as important is benchmarking and measuring the success of those programs. While most companies identify financial growth targets for the merger, how many are benchmarking and measuring the success of their culture programs? Sustainment of the new culture will extend well beyond the newly merged brands. 

In our next installment on culture during M&A, we will address how good companies are proactively managing change and how they’re aligning their culture to brand in the new merged brand environment. For more information about developing culture programs for mergers and acquisitions, contact Adrenaline at info@adrenalinex.com

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