Ask Andi: We are thinking about joining forces with another firm. Cultural differences could be the biggest problem. What can we do to make this work?
Thoughts of the Day: Due diligence is a process of detailed investigation. Mergers are like courtships. Set up a system. Finding common ground is crucial. Get answers to key questions out on the table. Evaluate the outcome potential before tying the knot.
Before partnering, do your due diligence
Pre-deal, spend time together at as many levels as possible, professionally and socially. You don’t have to tell employees that you’re thinking of a merger. Just find projects for them to work on together. Socially, try a picnic, a bowling party, etc. to see how people join up – or don’t.
Work styles, priorities, and systems may be different and will have to be ironed out. Can people be flexible enough to pick the best from both companies? Or will it be, “my way or the highway”? leading to factions and division.
Make a list of what is similar between the two companies. Figure out how common ground can be used to build a foundation for the new entity. How will the concept be introduced? What will happen to reward people for getting on board?
Make a list of the strengths and weaknesses of each company. Are they complementary, redundant, or have nothing to do with each other? Identify ways that one company’s needs are met through the resources of the other. Define how strengths will multiply and weaknesses will fade away.
Know the balance between give and take
When doing a merger, complimentary differences can be healthy. Marry operational competence in one company with sales and marketing skills from the other. Voila, you have a company capable of expanding sales and meeting customer demands.
Play it out over time – what will the new company look like? Who will be in charge? How will customers be handled? Who will contribute to sales? Run operations? Keep finance, IT, and HR on track? What will be the standards in each area?
Will customers object or applaud? Are their competitors served by the other company? Will they have access to more and better products? Will prices go up or down? How about service levels? Prepare to promote the merger benefits. Day one, get out to meet key customers of both companies to reassure and re-sign them.
Cultural and leadership differences can be deadly. One company values tradition, the other innovation. One company looks to the future, the other protects the past. One company’s leadership style is the direct opposite of the other. One company hires “A” players, the other settles for also-rans. This won’t work well in the shared environment of a merger. Think twice before proceeding.
What happens if the new team of owners disagrees? What if cuts in staff have to happen? Who has the final say?
Due diligence is a process
Assess the leadership skills and learning styles of partners. How fact-based is everyone in their ability to assess and deal with situations that will come up? Hash out the structure and decision-making process before you ink the deal. Post-mergers make time and hire experts to teach people to work together.
Define your role in the new company. Ask yourself if you can live with that. Many business owners approach a merger thinking that stepping back into a subordinate role would be a relief – getting the monkey off their back. But, having had a taste of ownership can make it hard to swallow someone else’s directives.
Know why you’re doing the merger. Revenue growth from additional customers and products, and/or leveraging research and development is key. Things like reducing costs through shared technology or overhead reductions typically yield only short-term benefits. Make sure the deal pays off short and long term.
Do due diligence pre-merger. Sign confidentiality agreements and open up the books. Make sure everything is as represented
Write a plan to implement post-merger. Include timelines and accountabilities. Make all future partners sign it.
