CASE STUDY: Merger due diligence

A small but fast-growing and innovative company has been acquired by a larger organisation. Both are experiencing real problems adapting and accommodating the culture and processes of the other.

Using INPACT, the underlying reasons for these difficulties are clarified and it is possible to work out what they need to do to realise the benefits promised by the merger.

The larger company has a strong structuralist culture. Rules and procedures govern how the organisation works. This has allowed the organisation to become over-bureaucratic, with ‘silo working’ hindering the sharing of ideas and knowledge across the organisation. Change is slow and decisions are often passed down, with formal but inadequate consultation. The company recently underwent a restructuring and introduced standardised processes and systems across all departments, but these have not yet been fully rolled out and managers and staff are not enthusiastic about yet another change, although they recognise the opportunity this merger represents.   

In the smaller company, it’s results that count. Management rewards success, so individual members of the team are left to do more or less what they like, as long as they achieve results. There are some laid-down procedures, but people only follow them when it suits them. New initiatives are adopted only if people see clear benefits for themselves and their performance in doing so. There are some core systems but information is held and exchanged quite informally. Managers and staff were told about the merger, not consulted, and some people have already left rather than work in the larger company.

This is a classic situation where the cultures and capabilities of the two organisations are incompatible and where, unless remedial steps are taken quite quickly, the opportunity will evaporate for them to create something greater than the sum of its parts.

Initial work will include:

• Get clarity of objectives for the new combined organisation. This will start by addressing what the customers want and ensuring that this intelligence is widely shared and acted upon.
• Set up cross-dept meetings and joint projects to build trust across the new team. This dialectic style needs to be incorporated into the way the new organisation works – and rapidly, or the rot will set in. Reinforce it with an internal directory and regular cross-enterprise briefing sessions as well as encouraging a social network to emerge.
• Analyse existing processes to make them visible, involving and engaging people in both groups to come up with new and efficient processes that capitalise on the positives from both companies. This will not only ensure compliance to the new processes, it will sow the seeds for the new, productive relationships that will underpin the next chapter in the company’s development.
• Create a transformation programme, led by the CEO and visibly supported by senior managers, to capture and implement the changes needed to focus the new company and get it working effectively. The larger company will need to change as much and as quickly as the newly acquired company (indeed, it is partly in order to inject the smaller company’s ability to grow and innovate that it was acquired). The programme must have a formal benefits realisation plan with operational targets for all managers.

If you are facing this situation, you might be interested to find out what actions we recommended to put in place some of the cultural and process capability foundations needed to enable a successful merger.

Take a look at INPACT for Due Diligence (Mergers and Acquisitions) and then contact us.