Acquirers should proceed with caution when merging non-tech with tech companies
In the world of M&A the saying ‘opposites attract’ has never seemed so apt.
Responding to disruption, big industry incumbents are forging once-unlikely alliances with tech startups in order to digitize their business processes, harness the power of data or build or expand their online presence. For their part, digital native companies are buying into bricks-and-mortar businesses to expand their businesses or build the physical infrastructure they need to support their online success.
The result of such M&A activity is a blending and fusion of cultures that could not be more different.
In our new report, Culture Shock: anticipate the risks when non-tech and tech companies merge, we suggest that acquirers in these prospective unions need to proceed with caution; evaluating the potential for cultural problems—both people and non-people related—ahead of time and mitigating them any way they can. Otherwise, in the case of acquired tech companies, hard-to-find talent could flee or the very culture that helped drive success in the first place could dissipate and be lost, undermining deal value.
“The people components of a deal are the most difficult and most critical,” explains the Head of HR at a large software firm that has grown through acquisition. “When we have failed, it was due to lack of culture alignment, which included leadership perceptions, poor communications, and lack of thorough planning.”
We examine three key challenges in our Culture Shock report:
1. Bridging the cultural divide
Tech and non-tech mergers can feel like alien close encounters – for both organizations. A culture of extreme casual dress and flat organizational structures on one side and more formal dress and complex corporate hierarchies on the other can make uneasy bedfellows.
Recognize that the culture of any organization is like air, both invisible and sustaining. It is a tangible part of employees’ self-identity. Few things evoke stronger emotional responses from employees than an assault on their personal identity.
It is important to avoid bias when looking closely at the culture of a target. Focus instead on identifying potential challenges, while paying particular attention to areas of strength that need to be preserved.
Finally, be sure to address the cultural divide beyond people – in policies, programs, and approaches to decision-making. Identifying and assessing a target’s strengths and capabilities in these ancillary areas is just as important as evaluating people-related matters. Indeed, KPMG primary research included in the report suggests the gaps are wider in these areas, and that they can be just as great an impediment during a merger.
2. Reconciling disparate HR programs
Comprehensive people policies and programs on one side may well contrast with anything-goes policies on the other. Bridging this chasm and harmonizing programs may, at first, appear a daunting, if not impossible, task. All, however, may not be as it seems.
Conduct a careful stakeholder analysis before designing post-merger integration HR structures. This may reveal a yearning among the tech company’s employees for more rigour, structure, and fairness in compensation programs or for the more robust benefit programs typically found in traditional companies.
3. Transitioning the workforce without eroding deal value
The post-merger transition should be planned with exceeding care to keep key talent from heading for the doors. Newly-acquired employees need to feel welcome and part of the team. As a starting point, focus on helping new employees understand:
• How they fit into the future of the combined organization
• Who their boss will be and how their roles and responsibilities may change
• What the opportunities for growth and advancement are, and
• The strategy, mission, and vision of the new organization.
of M&A deals do not involve HR in a timely manner, or early enough in the deal. This leads to surprises later, such as early departures of key talent, additional integration costs that non-HR personnel were unaware of, or significant integration challenges that require additional resources, cause delays in the deal, or erode or dilute deal value.
Employees need to feel engaged in the future state design of the organization and know their voices are being heard. By making all employees a part of the process, acquirers can gain more buy-in for the post-merger organizational structure
Tech firms buying traditional corporations, or vice versa, can protect deal value by assimilating cultures with care. To explore some real-life examples and find out more, read Culture Shock: anticipate the risks when non-tech and tech companies merge.