International mergers and acquisitions have shown no sign of slowing down with the value of deals higher than ever. But how many companies and their CEOs take the time to assess the risks of a cross-border M&A? With failure rates of 50-70% surely somebody, somewhere must be asking questions?
Here are five tips to overcome cross-border M&A failure – important reading for anyone involved.
Cross-border M&A failure: Why are failure rates so high?
With a 50% chance of success you would ask yourself why CEOs ever say yes to any talk of merging or acquiring
With a 50% chance of success, you would ask yourself why CEOs ever say yes to any talk of an international merger or acquisition. They are not good odds after all. When it comes to cross-border mergers and acquisitions, the odds are even slimmer.
1.Cross-Border M&A Failure: The human factor is the biggest challenge
Approximately 70% of cross-border deals are thought to have no impact on increasing shareholder value
While senior leadership teams focus on legal and financial due diligence, they often neglect the ‘human’ or cultural challenges that are inevitable with international mergers and acquisitions.
While culture may not seem a priority, minimising or ignoring the people part of an international merger or acquisition can result in significant obstacles further down the line.
- An average of 50% of managers are reported to leave a year after international M&A
- Approximately 70% of cross-border deals are thought to have no impact on increasing shareholder value
What are some of the intercultural challenges that can hinder if not completely thwart the cross-border integration process?
2. Language and Communication Styles
It may sound obvious, but language differences can cause huge misunderstandings and frustrations for organisations integrating two nationalities into one workforce.
English speaking managers often make the mistake of assuming their new colleagues will adapt easily to operating in English. However good their language skills are it can be stressful to work in another language, particularly at times of uncertainty when important decisions are being made.
Non-native English speakers can risk feeling disadvantaged, and misunderstandings and frustrations can all too easily occur.
Non-native English speakers can risk feeling disadvantaged and misunderstandings and frustrations can all too easily occur
Even if both parties share the same language, communication styles and expectations can differ enormously. When there is a mismatch regarding:
- Levels of directness
- Displays of emotion
- Amount of detail shared
- Method of communication
All of these points come into play; the new management structure can risk being perceived as aggressive, untrustworthy, casual, secretive or worse.
Senior leadership teams need to prioritise communicating quickly and transparently via different channels and methods
Senior leadership teams need to prioritise communicating quickly and transparently via different channels and methods to ensure that they engage with the maximum number of employees.
3. Integration of National and Organisational Cultures
When two companies merge they each bring with them their own organisational and national cultures that include
- Core values
- Business practices
- Working preferences
- Decision-making processes
- Hierarchical structures
- Reward and recognition schemes
- Meeting etiquette
All of the above are shaped by the organisational and national cultures of each company. These differences need to be recognised, understood and embraced to ensure a successful integration.
Focus groups and training workshops can help to agree and share best practice
Once the leadership team has identified where the differences lie, they can work towards building a new organisation culture and determining a new set of structures, processes and protocols. Focus groups and training workshops can help to agree and share best practice.
Failure to recognise and adapt business processes and working practices can result in major cultural clash and misunderstanding
It is also important to agree which procedures need to be consistent across all locations and which can be adapted according to the local culture. Failure to recognise and adapt business processes and working practices can result in major cultural clash and misunderstanding which can have long-term negative implications for the new organisation.
A uniform might work well in the US for example but might not transfer well to the French arm of the organisation where individuality is highly prized.
Or an employee of the month scheme might need to be adapted to the team of the month for it to work well in certain Asian cultures where society tends to be more collectivist.
4. Engaging with New Customers
A core objective of many international mergers and acquisitions is to increase revenues by expanding the existing customer base. Again, this is not always as simple as one might assume and it is vital to understand the values and buying habits of these new customers to meet their expectations and understand what drives them to buy.
There are countless examples of cross-cultural marketing gaffes where slogans have been mistranslated
It is not only a question of adapting the service or product itself but in steering the associated marketing to fit in with local cultural norms.
There are countless examples of cross-cultural marketing gaffes where slogans have been mistranslated, unlucky numbers used or religious or cultural taboos broken.
5. Preparing for the Unexpected
Organisations embarking on an international merger or acquisition would do well to consider these intercultural challenges as a crucial part of their due diligence and planning and addressing the people issues early in the integration process will help to make your international mergers and acquisitions a success.
Cross-border M&A failure is not a foregone conclusion. Much can be done to prevent it – the key is to recognise the investment required upfront as part of the pre-merger planning and then ensure it is made part and parcel of the post-merger rollout plan.