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Culture in Acquisitions

Thursday, December 23rd, 2010

If culture is a company’s DNA, acquisitions are a bit like gene splicing. In an acquisition or sale, you want to combine the best of both worlds so you don’t end up with Frankenstein Inc.

Senior executives involved in hundreds of acquisitions report that ignoring a company’s culture is the leading cause of problems in acquisitions. So what IS this culture thing? And what does it mean to “pay attention” to culture – something that’s important not just in connection with M&A, but all the time?

Generally, culture is how things work in an organization. Not the formal org chart view, but how things REALLY work. It’s the company’s management style, history, strategic focus, and how and what it communicates. Are we customer-focused, market-driven, innovative or reliable? Is management directive, collaborative or a bit of both? Does the boss have an open door — and does he or she really want everyone to use it? Which way does communication flow?

I also see culture as the story we tell about ourselves. It’s what we believe in, what we talk about and how we play. It’s mission, vision and our relationships with each other and the broader world. It’s the story of how the company was founded and how we snatched the big deal from a competitor. It’s the all-out company effort to support a food pantry. It’s even that we always dress casually and have muffins on Friday.

Think of a time when your company did something that made you extremely proud. Who was involved? What was your role in the success? What was it about the company or its employees that made it possible? OK, got it? Now go out in the hall, tap someone on the shoulder and say, “You know, I was just thinking about the time when…” and tell him the story. That’s culture. And odds are you’ll hear the story making the rounds.

All those things, and more, go into a company’s culture. They’re also part of what makes a company valuable to an acquirer.

If someone buys your software company, where engineers work flex hours in dim rooms, wear flip-flops and listen to reggae, what will happen if the buyer is all about 9-to-5, business casual dress, brightly lit cubicles and no music? Unless those programmers and their subculture are valued, a huge part of the company’s value is likely to flip-flop out the door.

What if you’re the potential seller of a company? What are your culture concerns?

If you’re just selling off part of the company, one concern is for those who remain behind. They may now have more work to do without those who are going with the sale. That’s frustrating and stressful. Equally important, they’re facing a loss — of the interactions with their suddenly ex-coworkers. A big piece of their culture is gone.

Even if you’re selling the whole company, let’s face it — if you’re any kind of leader, those are YOUR PEOPLE going to the buyer and you care about them.

For both buyer and seller, a key to preserving culture — and value — is communication.

It’s important — on both sides — to go as fast as possible, have a plan and communicate. Be ready with as much transparency as you can offer.

As a seller, you can help your people and help preserve the value of the organization you’ve built. Don’t just talk about the price when you’re negotiating — talk about the team and the way they work.

And once you’re able to talk to employees about the sale, be clear about what it means.

What does the future look like? What do you know about the acquiring company and its culture? Celebrate your company’s culture — especially its successes. Tell that story I asked you to think of a few minutes ago. If you’re going to the new company yourself, be available to your people and reassure them. You’re the most powerful advocate they’ve got. Acknowledge the loss if only part of the company’s going. You and your employees have to go through the stages of grieving. Help people grieve and move on.

As the buyer, obviously you’re hugely invested in the success of this investment.

Make sure the integration is planned and smoothly executed — interacting with HR, the location of the cafeteria, job descriptions, building passes, parking spaces, bathroom keys, employee manuals, etc. Show you’re on top of things and that you care about a smooth transition. Pair incoming employees with mentors who know the ropes and can explain the unwritten rules that govern how things work. Make sure that your integration team — in fact everyone who will deal with the newcomers — is aware of the acquisition’s value.

In addition, be open and clear about what the future looks like. It’s common in acquisitions for some employees to lose their jobs. Be open about that, too. Everyone will be anticipating it; the more upfront you can be, the better for everyone — even those who may lose their jobs.

As you integrate teams and departments, encourage them to share their real and perceived strengths. Unlike those companies trying to fit a square peg into a round hole by ignoring culture, you can help yours build a new, shared culture out of the best of both.

Note: This post also appears on the Lyons Solutions LLC web site.

Stories We Tell

Friday, May 30th, 2008

Culture is a story we tell about ourselves that we believe is the story. But it’s a story that can change. New chapters are written all the time.

 

An acquisition starts a new story of the merged organization, but it’s also a new chapter in the ongoing stories of both acquired and acquirer. Keeping those stories alive and adding to them is as important as creating the new one. And for the new one to resonate it needs to be shared and created by all those involved.

 

Even troubled companies have Camelot stories – about the time they received an award, won the big account, launched a new web site, stole a march on a competitor by developing a new product. They also have cautionary tales – the champion in Accounting, the troll in IT, why it’s dangerous to go visiting HR.

 

It’s understandable, but unfortunate, that there’s so much secrecy in the early stages of an acquisition. Due diligence is limited to a handful of senior executives who communicate mainly about “hard facts” and only cursorily about the integration process – the story that will be unfolding in the months to come. There’s lots to be learned from both the Camelot and the cautionary tales if only the stories told around the water cooler were part of due diligence.

 

How an acquirer values the culture – the stories – of the acquired can mean the difference between being a hero, embraced by all, and a villain, resisted at all costs. The acquirer’s story shouldn’t be forgotten either. It shapes how the new employees see themselves fitting into the merged culture. In one acquisition I was involved in, we were seen as the barbarians at the gate. The acquired company was the flower of civilization and the CEO who sold his company and stayed as a consultant became the noble prince, resisting the evil acquirer and defending the downtrodden. You can imagine how bumpy that one was.

 

The theory of social constructionism suggests that organizations, relationships and even our self-image as individuals are a function of the stories we tell about our interactions and choices. We’re all spinning stories all the time, and social constructionism says that words create worlds.

 

Since it’s unlikely to happen during due diligence, it’s critical early in the planning and during the integration to bring the stories into the open to understand strengths, weaknesses, hopes, aspirations and fears. And to begin crafting the new chapters and the new story.

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