Emotional Integration in M&A

By GPMIP Associate, Hitoshi Yoshida

M&A is often compared to marriage. Two people are attracted to one another, share joys and sorrows, and make the decision to come together for life. Although most of their time is filled with laughs, they face conflicts caused by different thoughts, preferences, values, and attitudes. These conflicts are unavoidable because a couple, once strangers, have been raised in different environments. A happy marriage results from overcoming this conflict.

In M&A, like marriage, companies start to feel attraction because they feel similar or find attributes that the other side doesn’t have. Finally, this develops into a full blown romance and they imagine a beautiful future together. Likewise, both companies realize different cultures, values, languages, and business customs that are developed in different “family environments.” However, in M&A, companies are not patient.

According to a number of sources, the success rate of M&A is very low all over the world. Going back to basics, we know that M&A triggers conflicts of interest. The acquiring company, acquired company, and investor all want to maximize their own benefit. Once one or more parties start to demand too much, PMI will not be smooth.

I truly agree with the Top 10 Integration Mistakes that Scott Whitaker, Global PMI Partners U.S. Partner, points out below, and I emphasize “emotional integration” as the additional important factor.

1. Lack of Pre-Planning
2. No Formal Integration Strategy
3. Failure to Prioritize Work streams
4. Senior Leadership Void
5. Poor Communication Planning
6. Poor Synergy Program Management
7. Inadequate Resourcing
8. Lack of End-State Transition
9. Poor Organizational Planning
10. No Formal Measurements

We often hear reasons for integration failure:

• New management leadership was not effective
• Employee morale and motivation was low
• Key staff turnover was high
• Execution speed and commitment was low

These are all people issues, and might be avoidable if the acquiring company properly got buy-in from people of the acquired company by caring about the emotion of their people. Unfortunately, we have seen that people in the acquiring company often have a “We are the winner, you are the loser” attitude either unconsciously or consciously.

Look at the above picture of an airplane. One of the engines is burning out. It looks like an unsuccessful merger. The acquiring company is running 120% full of energy and motivation, but the acquired company is turned-off. Can it fly long, fast, and stable? No!

We must understand the psychological tendencies of people in the acquired company

• Win-Lose relationship: “We are the loser”
• Pride and Loyalty: “We have grown this company, you (new boss) knows nothing about us!”
• Fear of change: “I logically understand this change, but emotionally cannot agree with it.”
• Fear of losing status: “Will I lose my position?”

It can sound like paranoia, but emotions must be handled with care in M&A. In the PMI phase, we must manage stakeholders who have different interests in order to have speedy and accurate strategy execution. This is especially important in making employees’ alignment and buy-in a vital issue. Also fundamental is building trust among the leadership team as the key success factor to manage emotional integration.

One solution is conducting a powerful top management off-site meeting. In most M&A cases, the management conducts an off-site meeting in the early stage whatever big or small event to discuss SWOT, bright future, integration process, and so on.

However, discussion tends to be very much on the surface because people from the acquired company are reluctant to make positive comments with 100% passion while people from the acquiring company are excited. This interest gap fades away under the enthusiastic atmosphere, and the management considers the off-site successful saying “We are now aligned!” although, in reality, people are not aligned at all. We remember the lesson from the saying “Listening, understanding, and agreeing are not the same.”

One of my professional friends who works for a US based renowned private equity firm says “We always conduct the off-site meeting in the early stages of PMI, but we never know if it was successful because it’s difficult to measure results. Now we doubt it because our toughest job is still getting employees’ alignment and buy-in.”

From the psychological point of view, people’s ownership can be generated through constructive argument. Having a constructive argument among people from both the acquiring and acquired company is vital to making one team. Thus, the typical “fun” off-site event is usually not effective.

As one solution, we might conduct a 3 to 5 day off-site to align both “What to Do (strategy)” and “Want to Do (commitment).” It consists of “deep dive discussion” and “physical team building activities” in an inspiring environment to fully activate head, heart, and guts of the participants.

Physical team building activities under proper facilitation are very much effective. Participants work on “impossible” team activities under the new, flattened relationship. This experience can boost up their trust in the relationship though sharing a sense of accomplishment, excitement, frustration, and regret as human beings. It is also help to identify the value behaviors for the new company.

The team members become very open to speak up and listen to others, and they can have constructive arguments on sensitive topics such as how to deal with restructuring, reporting lines, operational conflict, culture difference, and openly sharing their personal concerns.

Designing a special environment is also critical to allow people to be open, honest and get closer. For example, we often have a bonfire session (with beer and wine) that has an incredible power to make people feel calm and be open without professional facilitation. In the end, the team voluntarily creates “Ground Rules (behavior level promise)” with 100% ownership in business action planning. Again, they successfully align both “What to Do (strategy)” and “Want to Do (commitment)” for PMI execution.

All conflict cannot be solved at the off-site meeting, but we can definitely create the foundation of a trusting relationship in a few days to facilitate constructive arguments. The value is priceless.

Taking leaders away from daily operations might sound risky, but it’s a small price to pay. The recovery of broken trust in a relationship is much more costly in terms of time, finances and energy.

We need to pay more attention to Emotional Integration in M&A as well as in our daily life. This is critical for companies that are planning cross-border M&A, as well as couples that are contemplating marriage!

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