Cooking Up Culture: Blending Mergers, Acquisitions & Motivation

ITA Group
ITA Group

chef tossing ingredients to represent mergers and acquisitions

Kids are innately creative, but they usually don’t have the real-world experience to know exactly how their creative ideas will pan out. Case in point: kitchen concoctions.

Chocolate syrup tastes really good. And ketchup is great on anything. So if they’re combined, you’ll get something that tastes even better, right?

One taste and the answer is disgustingly clear: Yuck.

As businesses grow, they look for ways to make themselves larger. Just like chocolate and ketchup, combining two great things can end up as one bad thing.

While global merger and acquisition activity dipped a bit in 2019, according to a new report from Refinitiv, the year still ranked as the fourth biggest year for global M&A since data collection began in 1980.

If businesses do not understand the merger’s effect on employee motivation, their efforts could fall flat or result in irreparable damage, leaving a miserable taste in everyone’s mouth.

Staff meeting about merger or acquisition

Maslow & Mergers

There’s one variable that’s often overlooked in the C-suite when debating a merger—and it has the ability to sink the whole ship.

Corporate culture.

If you’ve ever been involved in an M&A transaction, you’ve likely seen firsthand how critical culture is for the success of integration. And studies support this view—culture clash is the number one cause of deal failure.

Imagine for a moment: Your company’s CEO just announced a merger with a start-up. A flood of worry overcomes you and your coworkers around you. You’re sweating.

An announcement of a merger instantly hits on every one of the levels of Maslow’s Hierarchy of Needs:

  • Physiological: What if I have to relocate?
  • Safety: What if I have to compete for my job with an employee from the other company?
  • Belonging: How will I fit in with all these new people?
  • Esteem: Will I be respected? Will I be overlooked for that promotion?
  • Self-Actualization: Can I still achieve my personal and career goals?

When your people ask these questions, your company’s productivity takes a nosedive. On average, the acquiring companies in mergers with tight-loose differences (i.e., tight cultures have an efficient orderliness and reassuring predictability, but are less adaptable; loose cultures tend to be open and creative, but are more disorganized) saw their return on assets decrease by 0.6 percentage points three years after the merger, or $200 million in net income per year, according to an HBR study. Those with especially large cultural mismatches saw their yearly net income drop by over $600 million.

Who has time to focus on getting that report done when they’re worried about where their next paycheck is coming from?

It also hurts individuals in the form of anxiety and stress. Being caught up in a merger can be a stressful thing for employees and families alike.

The good news: If you have a sustainable culture based on performance, you will retain your highest performers and give them a place to thrive—no matter the hurdles that come with a merger.

Staff meeting about merger or acquisition

Establishing a New Company Culture

What does culture really mean? Is it the anything-goes? Or is it something else?

Defining your culture upfront is so important to ensuring you can effectively rally employees around it. This is a foundational step that helps you understand what matters to your people, the needs they have—and how those things might (or might not) vary.

So, when companies combine, the two cultures need to blend seamlessly.

Instead of merging everyone under one of the old company cultures, find a way to unite everyone under a common set of values.

Related: Consider these seven tips for creating a thriving, resilient culture.

Two women smiling during a work meeting

Making Mergers & Acquisitions Work

Once the magnitude of the COVID-19 crisis became clear, M&A activity shut down as abruptly as the overall global economy. Deal volume in April 2020 was 80% lower than in December 2019. Although equity markets quickly recovered, M&A activity—especially activity involving larger deals—has seen a slower recovery.

Is there light at the end of the tunnel? A comparison with M&A activity during the 2008–2009 financial crisis offers reason for cautious optimism. Looking at global M&A deals valued at more than $500 million since 2007, we generally see a pace of activity in the range of 40 to 70 transactions per month in the past ten years. Monthly activity fell below this range in consecutive months twice: at the height of the financial crisis in late 2008 through mid-2009 and in the first half of 2020.

Initially, the drop-off in M&A activity in the current crisis was worse than in the 2008–2009 crisis. But a clearly discernible uptick occurred during June through August, as monthly deal activity exceeded 40 transactions. Indeed, the uptick in M&A activity that began in June, including the resurgence in megadeals, suggests that the M&A market has turned the corner in recovering from the crisis—notwithstanding the risk of additional COVID-19 waves and the potential for a W-shaped recession.

Turning Workplace Into a Hive

Think about it in the context of nature: What happens when you combine bee hives? You run into issues because the bees are extremely loyal to their group.

While you can force them into one hive, companies don’t have the same luxury. Bees don’t quit their jobs, but your people can. And, if your company culture doesn’t resonate after a merger, they will quit (or fight to the death).

In human nature, you’re best off using respect, empathy and recognition of performance to get the most out of your people and make mergers work.

After all, remember this—culture rooted in respect is the honey that attracts people to your hive.

Looking to foster a culture that values resilience by supporting behaviors that embrace change throughout your employee experience? Download this ebook for even more tips and advice.

How to Build a Resilient Culture