Leadership through the M&A mirage
Mergers and acquisitions (M&A) is a feature of the free enterprise landscape.
The reasons for this activity are diverse; from strategic to operational, from stabilising an industry to satisfying the ego of a CEO, M&A activities are prevalent.
Whether it's the embattled acquisition of Time Warner by Comcast, or two small real-estate businesses merging in a slowing economy, the issues in an M&A are complex and the odds in favour of success are slim.
The recent acquisition of Royal Bank of Canada's Jamaican operations by Sagicor Group Jamaica is of particular consequence because of its size and potential impact on customers and investors alike.
What was RBC Royal Bank (Jamaica) Limited emerged from? A series of mergers and acquisitions. Sagicor now steps to the wicket and will seek to succeed where many before have failed.
Succeeding in M&A is difficult business. A leading global expert, Orit Gadiesh, now chairman of consulting firm Bain & Company, points out that "50-70% of the acquisitions actually destroy shareholder value".
She identified five root causes of M&A failure as: poor understanding of the strategic levers; overpayment for the acquisition; inadequate integration planning and execution; a void in executive leadership and strategic communication; and a severe cultural mismatch.
Gadiesh explains further in her article 'The 'why' and 'how' of merger success' factors necessary for a successful M&A.
1. Setting rationale: Six key rationales are active investing, growing scale, building adjacencies, broadening scope, redefining business, and redefining industry;
2. Letting the 'why' inform the 'how': The right strategic rationale will inform the preparation and valuation of the merger, what leadership and communication style to adopt, and how to plan for post-merger integration;
3. Fusing at full speed: Set clear milestones, require active management to achieve these milestones, act fast. A sense of urgency is essential during the early stage.
4. Keeping customers in the forefront: Teams from both sides of the transaction must work together to develop a new marketing plan for the combined company.
5. Communicating the vision: Executives need to communicate forcefully the new company's vision, and motivate people to channel their energies in the direction desired; and
6. Managing three phases of integration: i) set the stage; ii) design the new company; iii) make the integration happen.
Success of an M&A relies heavily on leadership.
Jean-Pierre Garnier, former executive director and CEO of GlaxoSmithKline, said that "In any merger or acquisition, investment banks and equity analysts will provide you with a plethora of figures quantifying
the synergistic strategic benefits of the union. Yet what determines whether a merger succeeds or fails is really its people." Leadership is at the heart of getting people to work together towards a common objective.
A useful framework for improving leadership capabilities during an M&A is the 'Six Domains of Leadership' model proposed by Sim Sitkin, Allan Lind of Duke University and Christopher P. Long of Washington University, St Louis.
Early and continuous communication is critical in any M&A. You cannot over communicate, but you must be consistent and stay on message.
Whisperings and rumours have a life of their own and are mortal enemies to the successful M&A. Know whom your internal conspiracy theorists are and make an extra effort to be clear and direct with them.
Group meetings should definitely be an integral part of your communication plan. Let as many people hear the same thing as possible. Create an opportunity for the parking lot speculation to be addressed directly.
If you don't know something, say you don't know. Trust me, staff knows when you don't know. Establishing and maintaining your credibility is essential.
Be very careful not to try to give too much comfort since it is likely that not everyone in the room is going to be retained after the merger.
People give their energy and commitment to the organisation. Treat them with honour and respect, and if they have to go, invest in preparing and supporting them for the exit. It will enhance the confidence of those who remain. People know that 'same knife that stick sheep stick goat'.
Beautiful rebranding notwithstanding, the outcome of the Sagicor Group acquisition is to be seen.
Will we end up with the 'blah' experience of RBC or the 'ahhh' experience of Sagicor? Will the new bank be able to clear a plot beneath the feet of the twin colossi of NCB and Scotiabank, get some sunshine, and against the odds, grow profitably?
Whatever the challenges, leadership will make the difference.
N. Christian Stokes is founder and CEO of NCS Enterprises. firstname.lastname@example.org