With stock prices higher than ever and interest rates still low, the past two years have been ideal environments for companies to invest their growing cash reserves to purchase another company. After surveying 1000 CEO and venture capitalist investors, Deloitte's annual Mergers and Acquisitions (M&A) Report predicts 2018 is another year of continued acceleration due to the up/down channel efficiencies created to secure additional market share.
According to HBR, an estimated 70% to 90% of all M&As fail to achieve their anticipated strategic and financial objectives.
The desired end results are efficiencies of scale and increased market share. However, inefficiencies and all-out neglect of employees around the legal and financial requirements involved in the transaction contribute significantly to the fact that around 83% of these transactions fail.
The increase in M&A activity combined with the high failure percentage should signal we have an issue here to address, and the area of focus needed is conversations. What gets talked about, how it gets talked about, and who is invited to the table determines what results you are going to achieve.
Managing Risk and Change
Acquisitions and mergers go hand in hand with big change. Different people respond differently to change, and even the most accepting and skilled in change can be challenged. During these times, our job as leaders is to ensure the company moves closer to goal. And, it is our job to pioneer strategies for success in today's market to further productivity in the midst of these changes.
Some employees lose their jobs, forcing others to absorb workloads. This impacts the precious and highly-valued work/life balance. After the M&A, the upside is many at the top make a lot of money, yet many more receive what one former colleague shared as "enough to make a couple of credit card payments." Increased workloads, miscommunications, and lack of clarity on the varying priorities have a significant impact on everyone, and it is primarily felt on the front line and lower levels of management.
Here's an extremely important question you need to be asking during times like these:
Is leadership equipped to handle conversations within their teams about the impending changes?
So, what are the costs if they aren't? And how can business leaders create best practices for their organization? How do we create a situation that increases the likelihood everyone will be celebrating this transaction?
Aside from poor financial planning and other strategic flops, the problem is to some extent relational. When these transitions don't go well for employees, that comes with a cost to the organization. Gradually, in a lack of communication, the rise of rumors, and positions not being posted, employees begin to question their well-being. They wonder, is my job in jeopardy? One participant in a recent Fierce workshop spoke of the panic that ensued when layoffs of non-essentials occurred during an M&A.
If a work environment is going to be healthy, emotions need to be addressed. Ignoring an employee's emotional needs during this change is not only shortsighted—it is extremely risky to the brand valuation and future brand equity. It can all go south with one unfortunate social media post gone viral or one bit of negative media coverage. This is where risk management and change management should collide, and there needs to be an assessment of employee morale. Herein lies an opportunity to mitigate long-term risk while also exiting the M&A with an intact personal reputation and with a brand's value successfully carried over to the new reputation. Early recognition of and value placed on the employees' experience during and their success after the transaction are essential when creating and executing a mindful, successful M&A strategy.
Even when given a directive that isn't what you'd prefer, prepare your team and ensure they know that their concerns are also your concerns.
What is the impact on the company or the brand due to the resulting emotions of fear, anxiety, hostility and anger that can suddenly devalue the "golden goose"? Companies who are client facing, listen up!Emotions felt by employees are directly transferred through actions to your beloved customer.
Transparency, Trust and Brand Equity
One of the biggest issue preventing acquisitions and mergers from going well in business today is a lack of transparency. When employees don't know what's going on, gossip ensues, anxiety rises, and distrust becomes a strong undercurrent in your organization's culture.
I understand why many companies are secretive during this time. Companies don't want their competitors to witness the internal shifts and instability that may be taking place during such a transition. At the same time, there must be a way up front to let people know the impact through honest conversation—employees need to know what's at stake through this awkward stage of transition. The greater amount of information that can be shared legally, the better off everyone is. My experiences have shown me that nothing good comes from leaving employees in the dark.
With that said, M&As and how to lead prior to the valuation and contract signing cause concern for many leaders who know the whole story. Leaders need to ask, what "best practice of confidentiality" conversations are we having? Are we all on the same page?
Manufacturers with limited or small client facing employees, beware. How do we stabilize the company valuation knowing the ingredients for gradual then sudden loss of brand equity exist?
To further this, we know that through social media, websites and the press, our corporate environment's value in the eyes of consumers is more transparent than ever. What if the story of a single parent layoff, where you had them escorted from the office by security after termination—with no notice and a two-week severance—hit social media? In addition to no notice, they had incurred expenses to work for your company, and your navigation of this sale was the cause of their layoff. People care you laid someone off. It has killed big brands, diminished brand equity, and value propositions internally and externally. This typically happens gradually then suddenly, and it will continue to kill brands.
When you destroy emotional capital and trust with either employees or customers during a time of big change, it will be expensive. These are situations where the "trickle down" effect actually works—the conversations you're having during this time really matter for the company, and they will determine success.
Navigating M&As with the 4 Objectives of a Fierce Conversation
The importance of leadership during any change is necessary and in a big change like an M&A, it is essential. To lead, you need a comprehensive strategy that's inclusive of employees and their experience during the process. To assist in the development of the strategy, I fiercely recommend the following 4 objectives to greatly reduce risks and solidify ideal outcomes:
1. Interrogate Reality – first, explore yours. If you're thinking M&As are hard and are only focused on the prize, I'd challenge your context if you want to mitigate risks for the company, yourself, and everyone involved. As leaders, we have an obligation to be of service to our teams. That involves coming into any strategy creation with a growth mindset that recognizes and enriches each relationship and brought the company to where it is today.
Fierce's Team Conversation is a fantastic tool to use to get the input of others and ensure varying and competing views of reality have input. If you are personally not involved in the strategy creation process in your company, every company, every owner and CEO most likely has thought of their exit strategy or succession plan. Be proactive in exploring with them how this will be handled in your company. If you plan to stay there with the company, this is also about your future. Get curious with them as a show of support for the company, for the individuals, and for yourself. This gift to them will…
2. Provoke Learning – again, yours and others. Fierce Coaching will further your company's M&A strategy by having conversations that matter, conversations that build accountability, and conversations where we have the space to think and self-determine our paths forward. This sounds odd, but possibly coaching up with those responsible for creating transition plans, when executed well, will be a gift. In the transition, if leading a team, don't assume everyone will react according to what you've heard and planned. The grieving process is unique for everyone and team members will grieve loss of jobs, relocation, and overall change. There are many decisions to make to ensure this process supports your culture.
3. Tackle Tough Challenges – My toughest challenge in my previous M&A experience was ensuring I'd keep my integrity to the company and to my team. When the raw emotions of others fearful of losing their income earning opportunities hit me, it hit a very vulnerable place in me. I am thankful I was able to transition my team elsewhere in a way that furthered their individual career paths well. I have that burning passion for everyone's safe and sound futures. For me, it strengthened my will to push through the ugliness and the winds of change it can bring, and it helped me continue to have conversations to map out the safe harbors for each to drop anchor.And while this is tough, it is a part of most people's work life today. When you tackle tough challenges with smart and heart (and integrity), you will leave knowing you did everything you could…
4. Enrich Relationships – Tough conversations, when entered into with this objective in mind, become easier. While you can't change the challenges people are facing, you can work with them to ensure they have the tools and resources necessary to self-determine their best future.When you do it right and further your company's emotional capital, you increase the odds of retaining the key employees and transitioning others to their new company in a way that will further their careers.
Lastly, while no single conversation is guaranteed to change the trajectory of a career, a company, a relationship, or a life, any conversation can.
Seeking External Support
The good news is that mergers and acquisitions don't have to be as relationally messy as they often are. When changes are on the horizon, it can be an exciting time and an opportunity to build trust while weathering the storm together.
One option is to bring in training that will create company cohesion during times like these. Leadership training can make all the difference by bringing in a common language and uniting people within merging companies that may have initially been on different pages, especially when it comes to culture. Conversations training can teach leaders what to talk about and how to talk about it—empowering them to have the conversations that matter most and inviting their teams to do the same. Empowerment comes when everyone can share concerns up the chain, and to voice and request feedback both ways.
If you're an employee experiencing an acquisitions or merger, my advice is to ask what you need to know. Don't wait for leadership to initiate the conversation. If you can't get any information or if you're not being connected with on an emotional level (and feel like you're becoming nothing more than a widget), it may be time to start planning your exit.
Using what I know from Fierce, some of my practices during these times of change, and my 20/20 hindsight, this first Fierce blog of mine is cathartic for me and in service to you. It is rewarding for me knowing it may be of service to your organization.
Here is to having conversations that matter, conversations that create our desired results, and ensuring our personal brand equity developed through our relationships grows during and after these ever-increasing mergers and acquisitions.
You can start having these quality conversations now to get your culture started on the right path and avoid traps that can hijack your intentions. Read more in our recent blog post: ARE YOUR CONVERSATIONS SUCCEEDING OR FAILING? HOW TO IDENTIFY TRAPS IN YOUR ORGANIZATION.