The appeal of mergers and acquisitions (M&A) is undeniable. The potential to reduce costs, share resources, expand service offerings, reach new customers, and increase revenues are advantages that can set businesses up for long-term success in unpredictable economic climates. However, these transactions can be risky, costly, and, international research shows they have a high failure rate, hovering somewhere between 70-90 per cent.
The majority of mergers and acquisitions fail to meet expectations because of poor cultural integration. M&A deals tend to focus on financial synergies, and when organisational issues are addressed, the focus is on organisational redesign and managing talent.
Continuous increase in M&As regionally and globally
Despite the downsides, M&As in the Middle East – and globally – have continued to increase in number and value and show no signs of slowing down. The allure of cash infusions into struggling businesses or outmanoeuvring the competition continues to be more compelling than the risks and pitfalls of such convergences. As of August 2019, there were 163 M&A deals in the GCC region totaling $28.8bn, continuing a trend of deal valuation breaking $30bn over the last few years.
In 2018, the UAE led the way with acquisitions, accounting for more than half of the deals within the GCC. While the UAE outpaces other countries across the region, M&A activity is picking up steam elsewhere.
Saudi Arabia is poised to see an increase in M&A traction bolstered by higher oil production and the increasing strength of the non-oil sector.
Bahrain and Kuwait
The announcement in September 2019 that Kuwait Finance House KSCP proposed the acquisition of Ahli United Finance House BSC for $8.8bn makes it the largest deal in play for this year.
High-profile M&As in recent years have spanned virtually all industries. Financial services saw the merger of Abu Dhabi First Bank and First Gulf Bank in 2017, creating First Abu Dhabi Bank, the UAE’s largest bank and the second largest in the Middle East by assets. In the car-sharing sector, Uber announced it will acquire Careem with the intent of improving the region’s transportation infrastructure at scale while allowing Careem to retain its brand and identity. Agro-chemical companies Dow and Dupont merged back in 2017 to increase the speed of innovation and have since split back up into three companies specializing in different segments. Global shipping giant FedEx continued its long legacy of M&A activity when it acquired TNT Express in 2016 to expand its services and leverage TNT’s strengths to offer more capabilities to its clients.
No matter the industry, the process of integrating two – or more – company cultures is complex on a variety of levels. The intricacies of combining companies is a daunting task and, is what contributes to such high failure rates. However, a thoughtful and thorough approach to M&As can help companies navigate the obstacles and emerge as success stories.
One of the key aspects of M&As that organisations should be mindful of is the impact these transactions have on employees. Feelings of uncertainty and anxiety often arise when employee experience isn’t considered and can lead to issues of engagement, retention, and morale.
A 2013 study by Aon showed that M&As caused more disruption to employee engagement than other type of changes and that it can take up to three years for employees to recover positive levels of engagement. Disengaged employees cost companies billions of dollars each year in lost productivity, missed workdays, and increased absences due to illness.
Companies should consider key areas of the employee experience when developing and implementing M&A plans: communication, culture, talent strategy, and systems.
While it might not always be possible to communicate all details of pending mergers and acquisitions until the deal is done, a thoughtful and comprehensive communication plan should be put together and launched in a timely way so employees can get up to speed on the details quickly and from trusted leadership sources. Determine and identify key messages and communicate through a variety of channels, and make sure leaders at all levels are prepared with talking points, FAQs, and details to answer questions from employees. Messages should come from the highest levels of the organisation, most importantly the CEO and senior executives, so that employees feel informed from the top.
Company culture is another aspect to consider and plan for. When merging two distinct entities, values, behaviors, and norms can be wildly different. To help mitigate any culture shock across your newly merged employee populations, take time to understand and analyse both cultures for similarities and differences. Instead of expecting one company culture to assimilate entirely within another, consider ways to integrate practices, programs, and initiatives from both to create a sense of shared ownership. It is critical for the executive team to articulate the “to be” culture and what mindsets and behaviors will drive business success. A sophisticated culture plan will integrate the “best of” previous culture practices and highlight what is new in the “to be” culture of the emerging organisation.
When combining workforces, you’ll have to account for increased headcount and additional training and development needs. Working with your human resources, talent, and learning departments to create an integrated talent strategy, that will help employees succeed within the new organisational paradigm, will not only set your business up for success but will also show employees that you are invested in their careers and their continued contributions to your organisation. Importantly, organisational leaders need to match talent to the new value creation agenda. If there are any “cost savings” because of role duplication and overlap, it becomes essential to manage redesign efforts in a high-trust manner so as to not erode trust in the new organisation.
There’s nothing worse than not knowing how to use systems or platforms necessary to do your job. When employees integrate with another organisation, there may be significantly different systems in place for things like communication, knowledge management, timesheet, procurement, and other important tasks.
Make sure your subject matter experts and responsible teams are prepared and able to support employees in transitioning to different systems and can provide the necessary training. It is useful to “overestimate” the amount of time required because not understanding or managing changes in systems and processes can create organisational drag and increase cost.
Mergers and acquisitions are complex but taking an employee-focused approach to preparing and implementing the change can set these transactions up for lasting success.
Michael Burchell is the CEO of Great Place to Work, Middle East