Mergers can be an excellent growth strategy, but it’s also a complicated process. Here are three key tips if you’re considering a merger.
Mergers are a tried and tested growth strategy that can be highly successful – or a total disaster. Here’s how you navigate the tricky waters of a merger to grow a larger, stronger and more sustainable organisation:
In 2015, 44 000 mergers and acquisition transactions took place globally, with a total value of more than USD4.5 trillion. – IMAA Institute
1. Understand why you want to merge in the first place
One of the core benefits of merging two businesses is that sales should immediately grow, along with competencies, operational efficiencies and client bases. In theory, the new business has a much greater potential for increased profitability as well, since operational costs should be reduced.
However, mergers are also very complicated. There are a number of growth strategies available to businesses, and you need to be sure that this is the correct avenue for you before embarking on it. The culture of the new organisation will differ from the original cultures of the pre-merger businesses, so be sure you’re partnering with business owners and management teams whose values you share.
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“We believe that merging three business, the IS SME Business Unit, MWEB Business and IS Ignite, was a solid growth strategy, but it was important that each business unit complimented each other both structurally an in terms of product offerings,” explains Tony Koutakis, executive head of Ignite. “Change is personal for everyone involved, and it can be scary.” It’s important to all be on the same page for a merger to be successful.
“I’d done so much research around mergers going in,” says Nonkululeko Gobodo, founder of Gobodo Inc, which merged with SizweNtsaluba in 2011 to form SizweNtsalubaGobodo, one of South Africa’s largest accounting firms.
“I’d spoken to people who had done it, attended courses, read books – most of which was specific to accounting firms. I thought I was prepared. One lecturer actually told us that if we were there because we were planning a merger ourselves, ‘Don’t do it’. Of course I was going to do it anyway, but once we were in, I realised all the preparation in the world hadn’t adequately prepared me. Mergers are complicated. You need to be doing it for the right reasons, because it won’t be easy.”
2. Communicate, communicate, communicate
Koutakis believes that Ignite’s merger was successful because all stakeholders were included in the process, from clients to employees. “It’s important to be clear and accurate when discussing change. Everyone needs to understand the direction the company is taking and you need buy-in from each individual involved.”
According to Koutakis, a merger is a consultative process. “You can’t just talk to people; you also need to listen to them,” he says. This involved meetings with division heads as well as individual employees, discussing concerns and answering questions.
3. Appoint a champion of culture
Leaders attract and appoint people who are similar to them. This is one way that culture is fostered in an organisation. This means that when two businesses merge, two cultures are merging as well, and even if the companies have shared values, no two cultures will ever be exactly alike. It’s therefore important to foster a new culture as quickly as possible.
“When we merged we thought we had a shared history and this meant that our organisations would be similar,” says Gobodo.
“We soon learnt it was a faulty assumption. We might have a shared history, but that didn’t mean our operational cultures were the same. The differences in the way our two organisations did business caused a lot of frustration, from top to bottom. The new business had 55 partners and 1 000 staff, and everyone was on edge.”
Related: 4 Ways to establish a strong culture without sacrificing start-up success
Gobodo and Victor Sekese, MD of SizweNtsalubu, realised that a cultural champion was needed, and Sekese and Gobodo filled the role. “Mergers are always a time of uncertainty for employees, and so it’s important to have someone they know and trust to champion the change.”
But there were challenges: Both Gobodo and Sekese had to let go of the cultures they had been instrumental in shaping. “Change has to begin at the top,” she says. “You can’t expect to change things within the organisation if you won’t change too.
“We treated the friction as a positive thing, using it as a catalyst to change. It forced us to critically evaluate every piece of the organisation, choosing what worked best. This allowed us to forge a business that was stronger than the sum of our parts.”
Often, once the new organisation’s culture has settled, people start to leave. Let them. The new culture doesn’t suit them, and both parties will be happier if you part ways.