The Human Aspect of M&A

‘Mergers and Acquisitions’ is abbreviated as M&A, but those initials could just as easily stand for the ‘Morning After.’ Because, just like with any new relationship, on the very next day so many significant issues can start popping up, things that most CEOs of acquiring companies disregard before the deal is signed. One such issue is a study of the organizational culture of the company being acquired and the manner of adapting it to the new parent company.

The Harvard Business Review recently published an article called “One Reason Mergers Fails: The Two Cultures Aren’t Compatible” (October 2, 2018). Leaders who are looking to achieve a successful merger, without falling into the current average M&A failure rate of over 50%, need to identify a path for integrating both corporate cultures. Compatibility can be reached, but awareness is the just the first prerequisite out of many necessary steps.

Considerations for Improving the M&A Process, When One of the Parties in a M&A Deal is an Israeli Company

Due diligence is performed before a contract is signed. The process is usually led by a large investment bank or consultancy firm such as Goldman Sachs, PwC, E&Y and others. In brief, the potential company and the feasibility of investing in it are investigated with regard to its assets and activities. It generally includes running a financial and legal audit, identifying business opportunities and risks, and analyzing projections of company activity. The subjects most discussed are timetables, business potential, acquisition price and administrative integration. However, less emphasis goes to checking the cultural mach, and the use of Cultural Due diligence.

Dr. Haim Benyamini has researched the human/cultural aspect of mergers and acquisitions, relying on over 20 such transactions in the Teva pharmaceutical company. Benyamini was Teva’s Vice-President of Human Resources, from 1988-2004. Combining research and practice in an international corporation led him to some very interesting insights.

The cultural aspect of M&A involves three cultures that mesh in each company:

1. The national culture of the country in which the company is located.
2. The company’s organizational culture.
3. The culture of specific departments that will have to cooperate with each other following integration.

Here is an example for differences in the national culture of the country in which the company is located Re Hierarchy and Respect:

A Hungarian manager, from a company that was acquired by an Israeli concern, was insulted by the meetings that were scheduled for her in Israel, as the job titles of the people she was supposed to meet seemed ‘inferior’ to her high position.

Such a situation could have been mitigated through awareness of the European emphasis on hierarchy, and providing the Hungarian manager with an explanation of the specific employees’ expertise and why it was important for them to meet.

Although it is just a little misunderstanding and luck of cultural competence and knowledge, such conducting hurt the individual and later effect the communication between the employees in the way to global success.

In any M&A the people are affected and it’s vital to remember that behind each signature on an acquisition are lots of individuals who will have to cope with the changes brought on by the integration. In each such instance, there’s a cultural gap that should be addressed.

According to Dr. Benyamini’s experience and research, when one of the parties in a M&A deal is an Israeli company, specific clashes with Israeli culture need to be taken into account. Namely:

1. Israelis speak directly to the point with very little diplomacy.
2. Israelis hold the ultimate goal sacred, rather than the process.
3. Israelis do not distinguish between free time and work time, so there’s an (unwritten) expectation that both sides with go above and beyond the call of duty during “off” time as well.
4. Israelis do not give special respect to executives or older managers; they are accustomed to less hierarchy and more dialogue with people in the field.
5. Israelis base business relationships on trust built up through face-to-face meetings and friendships.

 Conclusions

As an organizational consultant specializing in cross-cultural communication, I am well aware that none of us can change any national culture. Nevertheless, we certainly can learn more about it, develop empathy, and relate to it from a place of cultural intelligence.

In order to achieve a successful international merger, the management team needs to understand the strengths and weaknesses of both companies’ cultures and both national cultures, and develop a cultural integration approach, before the merger is decided upon. A superior acquisition process incorporates learning not only about the organizational culture and key people in the company, but also assessing the degree of compatibility between the two organizations and predicting the level of cooperation that can be expected and future success.

It’s also best not to implement any changes immediately (not even changing he acquired company’s logo), but rather to wait at least half a year (or longer, depending on the specific case and the size of the cultural gap). Take time to get to know the company and its people. The entire integration and assimilation process, including the transfer of professional, human and cultural knowledge, should take about two years. Patience and the willingness to make sacrifices can help merging organizations overcome some of the most difficult challenges.

In my work, I meet with many companies in the process of acquiring or collaborating with Israeli companies, so I know the difficulties are great. Cross-cultural consulting can make a significant difference to the process of M&A among different countries who need to better communicate without take personal offense, and hugely facilitate the path to international business success. For more information about how to work with Israelis, see my book Israeli Business Culture.