Merger of Equals (MOE): M&A Strategy and M&A Integration Concerns
The Merger of Equals is a concept I have never agreed with during my M&A career. Yet, we hear this so often in the media and executive messaging. I have experienced there are no companies created equal, hence this messaging has always been problematic for me. If you dimension a company by size, capabilities, market share, brand, products, executive talent, engineering talent, geographic reach, or depth of penetration, companies are not equal across all (or even some) dimensions.
The messaging gets out of hand with cautious boards and enthusiastic management teams continuing to message merger of equals (mostly to appease someone); usually, only two factors i.e., size or headcount of each company in the ballpark range of the other lead to the conclusion (or delusion) of being equals who paid for it — does matter while creating the perceptions of quality or inequality.
In a recent survey conducted by my firm, corporate development and M&A integration executives did mention specifically that executives messaging Merger of Equals (MOE) were in the top 3–4 reasons for the sub-optimal M&A integration process.
Having seen this a few times, here are the merger of equals considerations on how to manage the M&A integration during an MOE:
The direction of momentum: Right from the due diligence and integration planning stage, be clear that integration messaging will be “forward-looking and constructive”, and the focus will be on how we move forward together and not on “why we are different and who will change” — it will be about “how we create a joint culture together”. Exceptions being the non-negotiables, like private companies merging with public companies, make sure the zero-tolerance zones are clear to everyone as well as their implementation.
A merger of equals valuation: This is not an HR thing to be pushed under change management or brushed aside as soft fluff-punting this to Human Resources and thinking that the problem will be solved can be valued threatening — the businesses must live with this aspect for months and years to come. Hence, addressing decision-making must be business-owned and HR facilitated- not the other way around.
Decision making: Consensus slows decision making, and creates a structure and process for making, communicating, and acting on decisions by ensuring executives are visibly involved. Make tough, yet transparent decisions quickly, especially where synergies are involved. Communicate jointly to employees, customers, suppliers, regulators, and channel partners with a unified vision of the rationale behind decisions and what lies ahead.
Value driver focus: Executives and Integration Leaders must clarify that nothing will supersede or circumvent the transaction value drivers — these must be executed by navigating barriers and differences. The differences in the company operating merger of equals model made the excuses to resist change, on a specific client I was helping, the integration leaders applauded and rewarded the creativity of people to navigate cultural minefields and operational differences to execute transaction value drivers.
Culture: Focusing a lot on culture change is not helpful — understand the culture, be respectful to each other, and leverage similarities to foster execution and differences to protect or navigate around. Culture can only be gradually shaped, not changed overnight — defining a shared vision for value creation is critical. Have “two in a box” leaders to enable future operating models, incentivize them to succeed while operating cohesively, and recognize small victories such as key milestones.
Channel Partners: While people focus more on customers and employees, they often ignore channel partners. They are the extended sales force of the company, and one cannot alienate them. Be upfront about channel conflicts and have a very transparent plan to address those. Also, when size is often the only dimension to measure equality, issues such as one company not relying on channels trivializes the other who does. This needs to be addressed during the due diligence itself, channel partners take the blame for not realizing revenue synergies — the leading practice is to have one or two-channel partner workshops (early) and listen to what they have to say after you communicate the combined co vision. Both companies should be represented in equal strength when these occur and not send someone for checking the box.
Avoid the traps of resistance: Understand patterns of resistance and do not fall into the traps of delays or fighting change. I have seen five distinct patterns of resistance i.e., unnecessary uniqueness, the culture of democracy, infinite appeals, justified delays, and technical flamethrowers — more on these another time. Therefore, plan for these patterns and develop foresight on mitigation plans without upsetting the apple cart. Transactions are very emotional and need to be dealt with reinforcing positive tones and lots of energy even if people resist — especially important during a merger of equals is to quickly move out people slowing down the process through elevated patterns of change resistance while rewarding people who embrace speed and change.
The most successful merger of equals integrations after messaging had some of these characteristics:
(1) Clear sense of who was strong in what area
(2) Clear understanding of non-negotiables — full transparency
(3) Strong “two in a box” leadership — incentivized for teaming, creative navigation of barriers, and hitting milestones
(4) Combined culture definition, as opposed to a culture integration
(5) Integration being themed around “forward-looking and constructive”
At the risk of repeating myself, there is no such thing as a merger of equals and no two companies are equal across all material dimensions. I would continue to advise executives and boards to refrain from open messaging around “merger of equals” but should also realize that advisors like myself are only influencers and people have their views and reasons.
Follow these tips and prevent yourself from falling victim to MOE messaging.
