Is your M&A Strategy Leaking?

India is increasingly becoming an influential M&A market with its Merger and Acquisition activity reaching $64.5 billion* last year, comprising 8.8 per cent of the overall Asia-Pacific deals and highest since 2007.

With the understandable focus on the financial potential of an M&A deal, people risks are often unseen and, at times, under-appreciated.  

It presents a promising opportunity for HR leaders to make an impact. The right levels of HR involvement can reduce costs and ensure cultural and organizational integration runs smoothly. If the human element is neglected, however, not only can initial costs increase, but the strategic intentions of the deal could also fail to materialize.

Research conducted by Aon in India with the top 40 most acquisitive organizations suggests that HR’s contribution is the heaviest during due diligence and integration stages, and that it plays little or no role in the other stages. While an HR due diligence is very often conducted in Asia, it tends to limit itself to actuarial valuation of unfunded liabilities, a summary of compensation and benefits programs, and a cost-impact assessment from a compensation and benefits standpoint, so that these elements can form inputs to the financial model. A due diligence never really focuses on the soft aspects that matter, such as culture, climate and engagement.

Unsurprisingly, cultural integration is cited as one of the top three reasons for transaction failure by both Overachievers and Underachievers.

A question for all of us today is this – When there has been so much talk about ‘culture’, not just now but also 20-30 years ago, why do we actually do so little? Does it have anything to do with HR readiness and sponsorship? Or is it business leadership that wants to focus on the hard aspects of compensation, benefits, productivity and ultimately, achieving results? This is not going to happen until HR manages to push its agenda through in board meetings and management committees. The HR function needs to be proactive, capable and have a presence to ensure that it is heard in these forums. While organizations recognize that culture is important and a top contributor to transaction failure, they struggle with how to successfully integrate two cultures. Aon Hewitt recommends the following approach to achieve a successful cultural integration:

• Have a point of view on culture. While culture is not good or bad, there are certain high performing culture profiles that are more supportive of specific business strategies. Organizations should try to implement a cultural profile that is aligned with their specific business strategy during integration.
• Focus not only on the ìwhatî but the ìhowî of culture. Often we see organizations focus on comparing the cultural traits (what the culture is) and ignoring cultural drivers underneath those traits (how culture works). By analyzing the drivers of culture, organizations will have concrete data on cultural opportunities and obstacles, and will be able to develop an action plan to drive cultural integration.
• Actively manage the cultural integration process. Develop a holistic plan for managing the cultural integration process. This includes defining specific targets to gauge progress, ensuring cultural work streams are aligned and relevant to business processes, conveying how and why culture is experienced at the employee level and developing a comprehensive change and communication plan.
• Take Action. Address the cultural drivers identified in the assessment and take action accordingly at the organizational, program or individual level. Ensure that these activities are visible, coordinated and driven to demonstrate your commitment to building an action-driven culture (a cultural trait that is universally shared by companies with high performing cultures across all strategy types).

The often quoted line ‘culture eats strategy for breakfast’ holds true and means make or break for any M&A strategy. HR leaders need to lead the dialogue on alignment, integration and business synergies with culture as a pivot to drive acquisition success. 

*Mergermarket's India M&A trend report