Merger deals and soft factors

The soft factors mergers are often underestimated, however, the truth is that these are especially important when it comes to mergers and acquisitions deals success. Now, the question arises as to the prospects of success of the mergers. Success stories about mergers and acquisitions prove again and again that only every second to the third merger is successful, and only one in three transactions lead to a substantial increase in enterprise value.

Incorrect integration management, a lack of preparation for the transaction or the wrong acquisition strategy are the main reasons for the failure. The term integration management as the most important source of error also hides the so-called soft factors, which are constantly underestimated. 

The focus in the integration phase is on the rapid achievement of the merger goals. These are in most cases “cutting costs” and “leveraging synergies”. But only by maintaining the motivation of the employees, the majority of the desired synergy effects can be realized. This is especially true for service companies, such as health insurance companies, whose employees are the central competitive factor. However, employees of merging companies often do not (adequately) analyze or involve employees too late.

Fusion situations change the balance

When an employee enters a job in a company, employees and employers also implicitly conclude a psychological contract in addition to the legal-formal employment contract, which regulates the mutually perceived expectations and obligations (willingness of the employee to accept embezzlement and development opportunities by the employer, etc.). The psychological contract is thus to be understood as a “psychological counterpart” to the formal employee-employer relationship.

Above all, the management of a company must be aware that the situation of a merger or takeover changes the conditions of the psychological contract unilaterally. For example, there is an imbalance if continuity and job security are no longer guaranteed from the employee, while at the same time the requirements of the employer to the employees, eg. In terms of flexibility and engagement. For employees, the balance between giving and receiving is then no longer correct. To compensate for this mismatch, willingness to perform and loyalty can decrease and even lead to internal dismissal or leaving the company. 

Business mergers have an emotional impact

The situation of a merger or acquisition is a profound change for employees, acting on both the rational and the emotional levels. The psychological and behavioral effects on the affected employees are also summarized under the term “merger syndrome”. This syndrome can vary greatly in individual terms but is mostly caused by a strong feeling of insecurity, mistrust of the employees of the other company, and the feeling of loss of control. The employees of the allegedly “weaker” company may also feel deprived. 

These emotional reactions lead to a strong focus of each employee on themselves. Work motivation, quality of work and productivity decrease and the day-to-day operations become secondary. In extreme cases, internal or even actual termination occurs. The prevention or alleviation of the “merger syndrome” and the associated problems are key factors for the success of the integration.

Active management of soft factors is necessary

Business mergers are demanding processes of change. Therefore, the same principles apply to integration management in mergers and acquisitions as to any other form of change management. The different (emotional) phases of a change are also experienced here in individually varying intensity. Using suitable measures, integration management can ensure that phases of rejection are quickly passed and emotional barriers overcome. Figure 3 shows some examples of possible actions in the different phases of the change curve.

Besides, the special situation of post-merger integration also requires specific measures to give guidance to insecure employees and to identify with the new company. According to our experience in merger support, the central components for the management of the soft factors are firstly the conscious integration of corporate cultures and secondly intensive information and communication:

1) Conscious integration of corporate cultures

In post-merger integration, not only business processes and systems but also organizational structures, employees and cultures must be brought together. The starting point of integration planning is the decision on the required depth of integration of the companies involved. To fully exploit synergy potential, a high degree of integration is usually necessary.

The decision on the depth of integration then also determines the form of the cultural merger. Here are the following options:

1. Acquisition of a culture (the buyer);

1. Cultural pluralism (both cultures coexist);

2. The symbiosis of cultures (“The best of both”).

All three approaches bring forward and

Disadvantages. The adoption of culture can lead to great resistance in the “defeated” organization but is characterized by great clarity. With the need for a high speed of integration, this is a suitable way. Cultural pluralism reduces the integration effort enormously. However, the peaceful juxtaposition also entails the danger of divergence or alienation of the integration partners. The third approach, the merging of the two cultures resulting in a completely new common culture, is in practice most difficult to realize and very time-consuming. 

However, appreciation of both cultures avoids feelings of discomfort and rejection among employees. A new common culture creates the basis for closer integration and makes it easier for both sides to identify with the new company.

Decisive for success is to quickly clarify what the target culture of the newly created company should be, meaning which norms, values, and principles now apply and how can these be implemented in daily work.

2) Intensive information and communication

Communication measures are aimed at encouraging employees to accept the new situation and tackling uncertainty. It is crucial to answering the questions: “What about me?” Or “What effect does the whole thing have on me?” For this purpose, the benefits and objectives of the transaction must be highlighted. Here, the company management is in demand, despite the many challenges in the integration phase to show a strong presence and employees to make the strategy and goals of the newly created company plausible. Staff meetings, information stands in front of the canteen or breakfast meetings with executives, for example, are suitable platforms for this. 

Also, employees do not only want to be information recipients but also want to get rid of their questions, suggestions, and criticisms directly. For example, an extra hotline, intranet forums or an email address for feedback to the integration project team also provide staff with the opportunity to provide feedback nationwide.

Besides, together with communication, personal contacts between employees, mutual site visits, team blending, team building, integration workshops, and leadership training are all important steps towards building a new business. It should not be forgotten to allow a review and appreciation of the “old” company. As with any change process, even a merger requires a farewell phase before something new can begin.