How an M&A Strategy Affects Company Alignment

A lack of strategic planning can sink an M&A deal from the get-go. All too often, business leaders fail to define a coherent M&A strategy prior to setting out on the deal-making process. This can lead to alignment issues between the two companies.

In contrast, putting in the appropriate amount of time and effort at the beginning of the M&A process can save you time and money down the road. Creating tightly defined goals, identifying potential synergies, and making concerted efforts to bring about cultural alignment can all contribute to creating a successful M&A deal.

Strategic Alignment

The best M&A deals are win-win solutions for both the buyer and seller. When businesses focus too much on what the deal can do for them with no thought given to the other side, they risk inadvertently self-sabotaging. After all, once a company has been acquired, it no longer exists as a separate entity. 

When you focus on creating value for both sides of the table, you’re really rewarding yourself in the long run. To that end, it’s vital that you create a strategic alignment framework and stick to it through both the planning and execution phases. 

Planning

Aligning strategy in M&A starts at the planning stage. Before you identify a target company, you’ll want to lay out the specific ways that acquisition can facilitate the advancement of both parties’ goals. This includes identifying potential synergies and growth opportunities. 

Synergies

Identifying synergies is an important element of strategic alignment. Synergies foster win-win solutions that create a greater return than the sum of their parts. Common examples of synergy include the elimination of redundant elements, cross-selling, and connecting liquidity with business opportunities. 

For example, if company A has an exciting new product, but they’re struggling to raise sufficient capital to fund its production capabilities, company B may provide an injection of liquidity to clear the way for expansion.

Growth Opportunities

M&A deals are sometimes viewed as a shot-in-the-arm tactic that can lead to tremendous inorganic growth over a short time frame. This mindset can occasionally lead to bad deals, though. This is especially true when leadership teams fail to appreciate the downsides to explosive growth. 

Positive examples of growth opportunities include:

• Moving into new geographic markets
• Expanding into a new area of business
• Acquiring valuable intellectual property
• Buying up a competitor to consolidate your grip on the market

It’s important to proceed with caution when assessing growth opportunities. The famed Chrysler-Daimler merger was a match made in heaven — on paper, at least. The $36 billion dollar merger should have given two of the world’s largest car companies stronger footholds in Europe and America, respectively. Instead, the entire deal collapsed just nine years after its inception when Chrysler was sold for just $7.4 billion in 2007.

You can learn just as much from M&A deal failures as you can from successful executions. Poor cultural fit is a commonly cited reason for the Chrysler-Daimler failure. We’ll examine this concept in greater detail in the next section.

Cultural Fit

Company culture is an intangible asset with an outsized influence on a business’s processes, capacity for change and innovation, and long-term success. A failure to align on this critical issue can lead to large-scale value destruction and a weak M&A strategy. 

Even the most similar companies will differ in some areas. To protect your investment, it’s critical that you take the right steps to bridge the culture gap.

Common Failures

Some notable examples of poor cultural fit that have led to M&A failures include:

• Quaker Oats and Snapple: Quaker Oats acquired Snapple in 1994 for a sum of $1.7 billion dollars. Three years later, it sold the beverage company for just $300 million. Experts within and outside the companies point to a cultural mismatch as the driving force behind the roughly $1.4 billion value destruction. While the two companies both operated within similar industries, Quaker Oats was an established, low-growth business that operated off bureaucratic principles. By contrast, Snapple was small and lean with a fast-moving internal structure. To put it simply, Quaker Oats smothered Snapple with red tape.
• HP and Compaq: HP’s 2002 acquisition of Compaq for $25 billion failed because of a similar problem. HP’s cumbersome internal bureaucracy stifled Compaq’s nimble culture. Morale declined, and many key staffers chose to exit, exacerbating the newly merged firm’s existing difficulties. 
• AOL and Time Warner: In 2000, AOL and Time Warner merged together in a $165 billion deal. Unfortunately, AOL’s fast-moving internal processes failed to mesh with the media giant’s more sedate pace of doing business. These differing outlooks led to culture clashes and a breakdown in cooperation that prevented the merged businesses from realizing predicted synergies.

It’s important to remember that no perfect culture exists. Institutional cultures often arise in response to specific pressures faced by particular organizations. Remaining mindful of these pressures and respectful of long-standing practices can go a long way toward maintaining staff cohesion in the wake of a merger.

Solutions

Before you can integrate two disparate cultures, you must first understand both. Company culture can often seem like a nebulous concept, though. To combat this difficulty, pay close attention to how work gets accomplished in each organization. 

Studying workflow, communication within and between teams and departments, KPIs, and organizational best practices can all reveal insights into the nature of a company’s culture. You should also interview workers at multiple levels within the company to get a more comprehensive overview of how the business functions.

Ask your M&A team to put together a cultural analysis for both your own business and the target company. You can use a Venn diagram or a similar tool to uncover the spaces where your companies overlap and where they differ. 

If the divide is simply too great, you may reconsider going forward with the deal altogether. This holds especially true when the target company has a deeply embedded culture or if it has a large and/or decentralized workforce.

However, in many cases, the difficulties of cultural integration can be surmounted. A great way to create buy-in from both sides of the table is to identify positive elements from both cultures. Ask your management staff to diffuse these new company values from the top down. Your staff should understand that the merger is a positive evolution and not a hostile takeover.

You may also find it helpful to bring in a disinterested third party to act as a liaison between the two sides. A consulting group can uncover problem areas and mediate between workers, groups, and teams. At the end of the day, the ultimate outcome of any M&A deal is to transform two separate companies into a single, cohesive business.

Bring Your Next M&A Deal Into Strategic Alignment

Bringing both parties into strategic alignment doesn’t have to be difficult. The two largest obstacles are often identifying and sharing relevant strategies, but you can solve both of these problems with Devensoft. 

Devensoft facilitates cross-team collaboration and communication with an all-in-one software tool. Schedule your free demo today to learn more about how Devensoft can facilitate cultural alignment during your M&A.