This article was originally published in 2015 and has been completely updated in 2020.
Good communication is essential to successful mergers and acquisitions. The communication role needs to begin during the preliminary stages to set the scene. Too often the communication starts too late and doesn’t deal sufficiently with the post-merger integration issues.
Mergers and acquisitions go through three broad phases. As part of an AT Kearney global survey, the question, “Which phase bears the greatest risk of failure?”, brought the following response:
This response shows that the most important time for a merger or takeover is when the deal has been formalized and the more difficult stage of ‘bedding down’ the process has started, requiring intensive communication. However, there is a case that communication should start early to pave the way for internal acceptance and post-merger integration.
Overwhelming experience indicates directly or indirectly that people issues are the main reason for takeover failures. And communication is central to the people issues.
McKinsey studies show that “management of the human side of the merger is the real key to maximizing the value of the deal.” Watson Wyatt Worldwide found that “cultural incompatibility was consistently the biggest barrier to integration.” Mercer Human Resource Consultants found that out of three key merger factors – people, processes and systems – only people issues made a difference to the success of mergers.
Effective employee communication is the first or second most important issue emerging in all studies of mergers. Internal communication and culture changes are identified as the hardest to achieve, but the most important in merger success. And, tragically, they are generally under-resourced in post-merger integration, and are often absent before the deal and the due diligence phases. Interestingly, customer issues are also extremely poorly resourced.
How could management do this? And how could highly paid management consultants let this happen? The two most important constituencies to look after – customers and employees – have largely been ignored. It defies logic!
To make matters worse, research by the International Association of Business Communicators (IABC) showed that most of the merger communication budgets around the world have been spent on external communication rather than employee communication!
Regardless of the brilliance of the vision and the fit in a merger, the subsequent success of the deal depends mostly on the employees. They are the ones whose day-to-day actions can make a merger work or can sink it after the deal is done. And a sufficient investment in internal communication is the link in keeping the employee attitudes positive towards the changes brought about by the merger.
Even before a formal merger or acquisition is underway, employees often become aware from indirect information or by chance that something is in the air. It is human nature to want to know what is happening. If they feel management is keeping information from them, quite understandably they start to feel anxious.
When people are uncertain, they start to speculate about the clues in front of them. Invariably this interpretation of clues becomes paranoia as they chat to workmates and quickly develop a view that a management conspiring the worst. The grapevine goes overtime with rumors. Productivity starts to drop as staff waste time in discussing rumors and losing some of their motivation. With well-developed rumors, some staff actually start to leave the company before, as they believe, the bad news hits.
When a merger is announced, staff in the acquiring company may not feel concerned initially. They belong to the new parent and don’t anticipate much change. This sense of security is not always justified because the process of establishing the new joint organization can reveal areas of the acquiring company that could be improved.
If two roughly equal parties merge, change will hit both sides. Employees will become anxious about their jobs. They will suddenly have to confront:
Effective strategic communication plays a key role in addressing these issues, but is difficult and complex:
Lack of information flow from the upper levels of management will cause problems for the first-line managers and supervisors who need to deal with the frontline employees every day. They will not know enough information to satisfy the day-to-day needs of their staff. This creates the dreaded communication vacuum – filled by the grapevine – that will undermine the positive aspects of the merger.
After a merger takes effect, strategic communication is central to the integration of the two organizations into a more effective single entity. By definition, this requires change communication.
Effective communication during the post-merger phase is required to:
Good communication practices in the post-merger period are:
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