While there is no crystal ball, slow economic growth and an inverted yield curve continue as headwinds for the banking industry. Both have already exposed vulnerabilities of large regional banks like Silicon Valley and Signature Bank, as well as G-SIBs such as UBS and Credit Suisse. While the speculated wave of consolidation may be overblown, there will no doubt be M&A activity during the foreseeable, uncertain future.   

HBR continues to cite that between 70-90% of acquisitions fail. In addition, MIT Sloan studied 200+ M&As with values exceeding $250M during a 10+ year period starting in 1995 and learned that in nearly two-thirds of those deals, brand strategy was deemed to have a low to moderate influence in pre-merger discussions. This approach leads to the new identity or identities post-merger in a suboptimal place with limited clarity and often stems from a gap in brand expertise during the M&A process and following.  

Specifically, we see five common mistakes related to brand that hinders speculated growth performance and increase costs during and post-acquisition:  

1. The deal strategy undervalues customer upside and risks: To complete a fully informed financial forecast, due diligence must quantify current and future demand, change tolerance and emerging customer requirements. 
2. There is limited understanding of purchased brand assets: For a truly shared optimized portfolio post M&A, companies must understand how all brand assets work to drive choice, revenue, and pricing power. 
3. Integration teams have a narrow framing as primarily a “re-branding” effort: M&A presents a rare, point-in-time opportunity to articulate a new corporate narrative, upgrade customer perceptions and drive lasting cultural change within the organization.  
4. Integration planning without a go-to-market plan to win: Integration priorities should pair synergy plans with growth moves: product, service and experience innovation to drive growth through the new asset base. 
5. The new enterprise under-leverages culture and employee engagement: Successfully informing, engaging and enabling employees BEFORE launching externally is critical to retaining human capital and driving cultural engagement. 

As inevitable market forces drive sustained or increased M&A in the banking industry, new and exciting opportunities emerge. Here are three practical things to consider that relate to your brand (and business) during M&A:  

1. Consider customer context early and often: Ensure all functional discussions include conversations around customer impact and set a precedent that addressing the customer impact and experience is a priority. This is especially true at retail banks, often built around specialized customer focuses or geographic footprints with entrenched identities.  
2. Evaluate the value and values of brand assets to guide the right transition plan: Typically, fewer stronger brands win out in banking. While long-term efficiencies exist for consolidating brands, careful work must be done to explore different end-states and migration scenarios. Perform the right evaluation ahead not just to understand the brand’s value, but also the inherent values the brand holds, and the customer perception to guide the right transition plan in context.  
3. Discover or rediscover purpose and power it through culture from within: Banking consolidation done wrong can feel like a mismatched transformer coming together with messy operating model discussions and integration cadences that unfold over time. This can be especially distancing for distributed employees working in branches or regional offices closest to the customer. Investing early in the process to better understand and sharpen a combined new culture with a more meaningful purpose can serve as a North Star for smoother and more engaged integration.  

Despite economic uncertainty and a slower rate of deals, organizations will continue to utilize mergers and acquisitions (M&A) to grow, diversify, penetrate new markets and develop new capabilities.   

M&A events represent a unique opportunity to transform a business, externally and internally. Externally, it can serve as an opportunity to enhance reputation, deliver on emerging or underserved needs and increase market share. Internally, it serves as an opportunity to drive lasting cultural change and inspire renewed purpose within the evolved organization.   

There’s a lot written about mergers failing because of culture. Unfortunately, most organizations are not using company culture effectively or systematically to maximize value and minimize risk in their deals. Organizations and deal team’s care. But it’s not a significant part of the integration playbook and doesn’t receive the required attention to make it accretive to the deal.  

At Prophet, we view culture as a hidden asset in determining the success of an M&A deal. Yet, culture is integral to the success of an organization. As organizations become more digitized and automated, people change businesses, which is why we have developed the Human-Centered Transformation Model. Our Human-Centered Transformation Model provides an easy and accessible, holistic lens for unpacking complexities and highlighting and understanding specific components to address cultural integration.  

With this framework in mind, here are five common cultural pitfalls many companies face during M&As and actionable insights on how you can turn the tide and achieve maximized return on your investment.   

1. Not Applying the Same Rigor to Cultural Analysis as to Deal Economics  

M&A teams pride themselves on meticulous due diligence. They dig into every financial, legal and operational element they can find. But they are often under-equipped for systematic analysis of the culture of the company they are acquiring. Nor do they detail the pathway to cultural integration in the same way that they would for the financial and legal elements to prove the viability and value of the deal.  

To overcome this challenge, M&A deal teams must determine cultural similarities and differences between the two organizations before finalizing the deal. To help our clients do the proper cultural due diligence, we build this critical cultural analysis and integration process into our transformation and integration playbooks. Gathering cultural data pre-deal reduces risks and speeds up integration by informing the strengths and differences between companies.   

It’s critical to find common ground to build on. Identify the bright spots that should be preserved due to intrinsic or financial value. It is also an opportunity to anticipate friction and allocate resources to support rapid integration.  

2. Lack of Transparency and Intention About Strategic Cultural Choices  

In most merger situations, leaders don’t clearly articulate the type of culture required to make the integration and future NewCo growth strategy successful.   

However, being honest and upfront about the cultural preferences that best support strategy, brand and integration strategy will begin the merger on a solid foundation and earn the trust of both sets of employees.   

Whether there is a dominant culture, a selection of specific attributes from both organizations worth merging, or a net new culture, executives must be transparent with employees. Be honest and open about the decisions, processes and rationale for every choice to preserve trust and respect across organizational lines.   

One critical choice to get right is who is selected for leadership positions. Individuals chosen for the top jobs within the NewCo signal to employees whether or not elements of their legacy organization’s culture and values will endure. The goal at this stage is not to be popular. Instead, it is to set a clear strategic frame for the people and cultural aspects of the journey ahead and a clear “why” that explains the decisions and the approach.  

3. Failure to Align Leaders From Both Parties  

M&A deals often come together in a rush. There may be multiple bidders. Or companies aware of the market anxiety that comes from a prolonged rumor phase, are anxious to make deals official. Once signed, the focus shifts rapidly to the physical and operational integration elements – there is always a lot of work to be done, and it’s very easy to overlook perceived ”softer” topics such as values and beliefs.   

That’s a mistake. As early as possible, leadership groups from both organizations need to come together to co-create purpose and values, the ambition for the desired culture and a roadmap to get there. It’s also essential to involve employees as early as possible. Regardless, if leaders from both sides don’t have the opportunity to debate and align on a shared ambition, direction and journey, the road ahead is much harder. Leaders from both sides of the NewCo must have a shared message for the organization’s purpose and values rather than deferring to their unmerged entities’ old purpose and values.   

Aligning the cultural direction and ambition during the early stages of an M&A deal is especially important when acquiring start-ups, which are often based on a radically different ethos than larger companies. Without deciding how to protect that difference from the outset, the acquirer can wind up squashing the cultural traits that are most valuable for growth.  

The nitty-gritty of cultural integration can come later. But there must be some initial high-level sense of how that might happen amongst the leadership group. Without a shared vision for what the united cultural DNA will be–the NewCo’s purpose and values–the deal is unlikely to fulfill its promise.  

4. Not Managing Cultural Messages – Everyone Is Watching Everything  

Once leaders from both parties have reached a consensus on what this new DNA will be, they must actively and consistently model those values as integration begins and beyond. Our research on Catalysts highlights leadership behavior as a fundamental lever in cultural transformation, especially during M&A events.  

In times of uncertainty and change, all eyes are on leadership. Every action and message–intentional or not–is analyzed and interpreted by employees. Never mind the top leader appointments, even decisions that may seem tactical, such as the choice of ERP platform or brand color palette, can send a cultural message. Senses are heightened in times of change. An organization failing to manage cultural messages consistently creates unnecessary fear and upset, impacting productivity and value.  

Intentional signaling early on and careful consideration of decisions, timing and positioning –with specific details about this new, merged culture–will be critical to building trust and engagement for the journey ahead. Being thoughtful about language, decisions, symbols, and rituals in the moments that matter will enable the integration to proceed at a quicker pace. Understanding employees’ experiences, perceptions and needs are essential.   

Put yourself in the shoes of employees. Use tools rooted in neuroscience, such as “SCARF,” to establish a standard toolkit and language, invite dialogue, track trends and equip your leaders to make good decisions and deliver consistent messages in line with your chosen culture strategy.   

5. Stopping Too Early 

It takes longer than most teams expect to holistically embed the “new” culture–to make it the culture. Leaders involved in the deal are like the elite athletes in a marathon. They are off and running before the employee base has even reached the start line and can quickly move on without thinking about those behind them. Once leaders have passed the initial messaging phase, they are often surprised at the depth and time commitment required to make cultural changes stick.  

This work requires detailed roadmaps to be clear on the destination and the steps to get there. These need to be measured and managed, even beyond the early integration phases, to help leaders stay the course and bring people with them.  

 Prophet’s Human-Centered Transformation Model (HCTM) provides leaders with an accessible lens for unpacking complexities and highlighting specific components that require focus–such as required skillsets and capabilities, important behaviors and symbols and the central structures, processes and governance mechanisms. The priorities can then be easily explored and understood to support rapid integration and drive sustainable value.   

Throughout the journey, leaders can promote the foundational DNA elements of the organization’s mission, purpose and values to act as the north star as they track tangible outcomes and signs of progress against the roadmap.  

Despite the uncertainty of the global pandemic and recessionary outlook, M&A activity continues to surge across all industries, with a record $2.9 trillion in transactions in 2021, and 2022 is expected to be even bigger. While not every deal requires naming, the large transformation deals do. In these cases, a new name is the most visible, symbolic and longest-lasting M&A decision. It’s an opportunity to start fresh and signal unity to employees and customers alike. But shockingly, many companies still get it wrong. 

Getting to a great name in these fast-paced environments requires significant care and attention. What sometimes starts out as “let’s brainstorm and come up with something cool,” can often turn into a highly emotional, intensely subjective process that can create leadership friction and decision-making paralysis, ultimately delaying a brand’s launch.  

Following are five best practices to get M&A naming right.

1. M&A naming is not a democracy. 

Since naming a new enterprise is something many executives experience just once in their careers, many leaders don’t want to make the decision alone. So, they invite stakeholders from every angle to weigh in. However, there will likely already be numerous decision-making voices at the table—including multiple CEOs, private equity partners, other investors or board members. In these multi-stakeholder environments, we believe the decision-making body should be kept to the right balance of as few executives as possible, but as many as necessary, with focused participation early in the process (yes, even CEOs).  

Despite the perception that naming is a fun, creative exercise, the reality is that it’s a high-stakes, emotional decision that will carry your organization into the next several years, and maybe even the next several decades. With this in mind, getting lean on the decision-making team, and ensuring they’re active participants from the very beginning, will lead to a more successful outcome.   

We also recommend that clients resist the temptation to test name candidates with employees—while inclusion is a noble goal, this step gives employees a voice in the decision, rather than treating them as an audience we want to inspire with our ultimate reveal.  

2. The name you want is probably taken, but there’s a better name out there that isn’t. 

This one is a tough pill to swallow. But with most M&A deals being highly global, getting a name to clear across many trademark classes and geographies requires deep, divergent thinking. Yes, ‘Mosaic’ is taken. No, you cannot have the name ‘Fountain’. ‘Iris’ does indeed tell an intuitive metaphorical story, but four other organizations already beat you to it!  

While we wish it was easy enough to just call the U.S. Patent and Trademark Office and ask for an exception, unfortunately, it’s not. But by exhausting creative exploration, you can uncover an adjacent or new idea that tells an even richer story. Sometimes that means you’ll get lucky with a simple, metaphorical real word that isn’t yet taken. Sometimes it’s about coining a gettable, “sticky” new word, and sometimes it takes getting comfortable with an idea that is more abstract—and more ownable. With an estimated 213 million companies in the world, naming isn’t just a creative game. It’s also a numbers game. And arriving at an answer that is inspired, strategic and viable requires diligence, objectivity and a willingness to push past your comfort zone. 

3. Every name has varying degrees of legal risk—but not every risk is a deal breaker.  

To add on to point #2, almost any name you consider will have some degree of risk associated. No name is ever given an ‘all clear,’ so getting legal involved early on can help you understand what degree of risk your organization is willing to take on, which will then influence the types of names explored. What’s more, different legal teams may employ different legal strategies to pursue or secure a name, from acquiring a mark to petitioning for co-usage with another party.  

When Google launched Alphabet, even an enterprise of their size and influence couldn’t clear the pure URL of alphabet.com or secure the pure ‘alphabet’ social handles, which were currently being used by other organizations with the same name, including a division of BMW. But Google believed Alphabet was the name that best represented the story they wanted to tell, so they went to market understanding there were legal risks associated with that name and launched with another URL—the very clever www.abc.xyz. All to say, legal baggage associated with your favorite names can be investigated and often worked around, as long as you have legal embedded in your process from the very beginning. 

4. Fast-paced M&A deadlines can work in favor of a successful naming outcome.  

With all the critical decision points and process gates leading to deal closings and ultimately a new brand launch, getting a name identified, cleared, designed and launched can feel like a daunting process. At Prophet, we believe sticking to an objective process and adhering to a thoughtful naming brief as the source of truth enables teams to use time pressure in a way that works in their favor. Having less time can actually be the forcing function teams need to evaluate ideas objectively, leave emotion and biases at the door and make quick, but meaningful decisions. When there is no time to second guess or decide by consensus, teams often trust their guts and arrive at impactful answers. 

5. And finally, remember that a name is a powerful asset—but not the only asset. 

Although we always say your name is your most visible asset, it is not your only asset. This is especially important in M&A environments, where there are multiple parties coming together under a shared value proposition that is oftentimes broader and more aspirational than their previous strategies or stories. While the name can certainly signal part of this new experience, it cannot tell the complete story on its own. We help clients see their name in the context of other strategic levers, like the promise they make to their customers, their visual language, or the experiences they aim to create.  

You Acquired a Shiny, New Technology Company, Now What?

Mergers and acquisitions help many organizations accelerate digital transformation through the acquisition of new products/services, technology, processes or talent. For example, McDonald’s recently acquired the machine learning start-up Dynamic Yield for $300M to scale their use of machine learning technology and improve the customer experience.

While there is nothing new about large corporations acquiring small specialist products or capabilities; these “digital M&A” deals are often different because:

1. The acquirer is typically a more traditional business
2. It’s not a “mega” deal, but more likely a small acquisition of a start-up or growth stage firm with an enterprise value of few hundred-million dollars
3. The motivation isn’t always about the products or capability but about the brand, culture, ways of working, processes and experiences
4. The acquisition is being used as a vehicle to accelerate business transformations, though has little in common with the acquirer

The target acquisition company is likely to be less than 10 years old and has “grown up” in the digital age. Its business model, processes and structure are much more likely to look like a “lean startup” business and has never operated outside those principles (e.g., customer-focused, data-driven, empowered decision making, rapid/iterative product development and innovation).

Typical Integration Approaches Will Prevent Maximum Value Capture

The traditional approach to M&A, with its focus on integration and synergies, was designed to extract value from an acquisition, not to enable the transformation of the acquirer (by the digital characteristics or products of the target company). The traditional “victor” approach risks damaging three of the most valuable aspects of digital acquisition: people, customers and growth.

People

The employees of targeted small technology firms have been part of a rapidly growing start-up company with a distinct culture and ways of working. They are committed to the culture and company, and proud of what they have accomplished. Yet, after an acquisition, only 36 percent of founders expect to stay at their company (CBInsights, 2019) and 33 percent of employees will have left within a year (Kim, 2018). This attrition is value destructive in two ways:

1. These employees are the talent who created, and knew how to operate the value, that was acquired in the company.
2. The people are often the types of new thinkers and cultural change agents that are key to helping the acquirer pivot into a more digitally-enabled organization.

Describing these differences simply as a culture fit issue understates the challenge. These differences are deeply embedded in processes, organization and behaviors – even technology choices (pretty much the whole business model). A rapid flight immediately caps the value creation potential of the deal by stunting the acquirer’s ability to learn from and be more thoroughly transformed by the new, digitally-centered team.

Customers

The merger or acquisition will undoubtedly result in changes to the customer experience. Sometimes these changes can seem relatively trivial (minor billing changes or web page navigation) while others are more significant (new pricing structures or sales relationships). Big or small, changes in customer experience are magnified in the context of digital acquisitions.

“The traditional “victor” approach risks damaging three of the most valuable aspects of digital acquisition: people, customers and growth.”

These companies have been built from the market back, products of fierce customer obsession and rapid, often daily (or even hourly) updates to products or service experiences. Even the slightest variation, like slowing the release of new updates or adding a new approval layer, can reverberate negatively with customers that have come to expect a more frictionless experience.

If not managed carefully, changes that impact customer experience can cause customers to look for alternatives, taking with them not only revenue but the types of engagement, feedback and insight that are components to driving broader digital transformation.

Growth

When working on “digital” mergers and acquisitions, we find that the primary driver is to drive significant growth. This is atypical to most M&As which tend to be focused on finding cost synergies.

As a result, the post-merger integration that is applied to the acquisition is biased heavily towards the identification and realization of cost synergies in technology, finance and operations. This “traditional” integration methodology was never designed to drive growth, and it certainly was not designed to consider brand, customers and a digital operating model.

Four Integration Actions to Create Value and Ignite Business Transformation

To maximize the full value of your next small digital/technology acquisition, make sure your integration process preserves, and is ultimately transformed by, the full assets of the firm – it’s people, customer relationships and operating models. There are four integration actions that will help you preserve these assets:

Consider Brand and Customer Experience Early and Often

Ensure all functional discussions include conversations around customer impact and set the precedent that customer impact and experience is a priority. Assess how the integration is impacting your customer experience in terms of disruption and potential opportunity from initial deal planning through to deal close. You should leverage your existing customer journey maps to assess the potential impact. Consider creating a standard set of journeys that you can show side by side between yours and the acquired company’s customer journey to define a future consolidated journey.

After the deal close, you may want to discuss details of the acquisition with your largest and most strategically important customers (particularly the key customer of the acquired firm). For your own customers, this provides a great opportunity to discuss what it could mean for them and how they could benefit from the new products or capabilities.

Broaden Your Culture Assessments

Standard culture assessments help businesses understand the broader cultural and ways of working differences between the two organizations, but rarely provide enough insight into how the cultural differences will impact the ways of working. Nor do they place an emphasis on what the acquirer can or should do for the acquired business. You should broaden your culture assessments to identify key processes where digital capabilities are likely to have a high impact such as product development, experience, marketing and sales.

Quickly Integrate New Talent

The most effective ways to integrate the new organization and accelerate your digital journey is to quickly include talent from the acquired digital organization. You can do this in two ways:

1. Look for individuals who you could move into your existing digital transformation program or team.
2. Place one of the digital founders into a leadership role within your organization where they will be a significant stakeholder for your digital transformation activities.

You will need to reshape incentives and governance across the enterprise to meet and support the expectations of your new digital-first talent and start to change the behavior of your existing talent. In addition, you will need to help reskill your existing workforce so they can play well with their new digital native colleagues.

Shake Up or Test New Operating Models

Acquiring a new company provides an opportunity to shake up your existing operating model. Examine a few areas of the operating model where characteristics of the acquired business might help you move toward a more evolved digital enterprise. For example:

• Governance: Does the acquired business have greater delegation in decision making which could help improve agility in certain more innovation driven functions?
• Product: Is their product development process using customer feedback more effectively to drive higher customer satisfaction?
• Measurement: Are their KPIs more consistent with digital products, and therefore driving improved performance?
• Service: Do they have a stronger service and customer first culture which improved customer retention and loyalty?
• Data: Are decision-making processes based on data or more effective?

2015 and 2016 were record years for mergers and acquisitions, and 2017 appears to be more of the same. According to MergerMarket, H1 recorded an 8.4% increase in deal value globally, compared to the previous period. 17 mega-deals equating to more than $10B have already been announced in 2017 – including Amazon/WholeFoods, Essilor/Luxotica and Mars/VCA. And with PE raising record buy-out funds, and several massive deals announced in 2016 that have yet to close – see AT&T and Time Warner or Qualcom and NXP – M&A will remain at the top of the agenda as the search for growth continues.

But will all these deals payout?

It’s not entirely clear that they will. M&A has an inconsistent record. Mega-deals tend to underperform while other M&A strategies appear to fare much better. Last year HBR challenged the industry, stating that M&As are a “mug’s game” with 70-90% of acquisitions ending up as “abysmal failures.” Despite the debate, M&A deals, especially for larger organizations, will continue. The prospects for organic growth are simply too low and the competitive risk of not moving is too high.

How to Build a Successful M&A Strategy

M&A transactions are modeled against a value creation logic: the economic theory for how a new combination of assets will create shareholder value through superior use of funds. The larger the deal, the harder it is for this logic to play out.

Mega-deal success demands that multiple strategic and operational assumptions of staggering size and complexity fall into place. Future market dynamics must play out as envisioned. Large employee populations and cultures have to mesh. Cost-savings schemes requiring intense operational discipline must be driven to completion in a marathon of sprints. Throw in systems integration, customer defection risk, key talent discounts and the occasional black swan event and the checkered history of mega-deal M&A becomes more understandable. But not inevitable.

3 M&A Strategies to Drive Mega-Deal Success

Drawing from decades of experience helping executives through M&A integrations, we have identified a blueprint for managing downside risk and accelerating growth.

From that blueprint, here are three plays to run at the beginning of the M&A process to maximize the possibility of success:

1. Model Marketing and Branding Decisions Before You Make Them

After the deal is signed and bankers clear the room, the hard work of realizing new value begins. Typically, this involves dozens of parallel initiatives including system integration, organizational restructuring, expense rationalization and branding/customer experience workstreams. These projects are bundled into a broader integration plan, coordinated through a PMO and funded from tax-advantaged integration budgets. Curiously, while essential to the post-close success of the deal, the marketing/branding workstream is often not managed with the rigor of other integration initiatives.

We frequently observe teams passing on high-potential strategies either because of a lack of analytical rigor or a failure of strategic focus. Often, companies do not recognize the power of available financial and risk modeling tools to support marketing and branding decisions. Additionally, because these techniques are often less familiar to marketing leadership, their insights can fail to sufficiently influence internal decision-making.

Case in point: Recently, a large multinational made a transformative acquisition (>$10B) that extended its reach into an adjacent category. Using an econometric model based on-demand analytics, we estimated the potential market share increase of several new brand and product architecture scenarios. In the leading scenario, the model estimated a multiple-point increase in share on the acquired company’s base business. Unfortunately, that scenario never made it to market as executives selected a suboptimal strategy based on pre-merger working assumptions.

The same holds on the cost side. Post-deal integration of a marketing system will demand significant resources of capital and time. The data is available to model scenarios that remove cost and process layers, while optimizing the capital deployed. The tools and capabilities are available but too few, we find, take advantage.

The lesson: the marketing and branding moves that could tilt the balance of power in your favor require:

1. Decisions based on analytical precision
2. The leadership wherewithal to make them

 2. Operationalize the Value Creation Logic Into a Plan to Win

Execution creates new value, not strategy. Almost all mega-deal structures rely on often aggressive cost-savings assumptions. They are central to securing financing or shareholder approvals. However, this focus on cost-take-outs and backend integration often distracts leadership from building actions plans that bring the new assets of the post-deal firm directly to customers.

“How does this deal actually create value for your customers?”

A few years ago, we were working with the CEO and executive committee of a Fortune 200 financial services player. The company had nearly doubled in size through a mega-deal that combined banking and asset management into a single entity and brand. The firm was tracking on its multi-year cost reduction plan but wasn’t gaining traction with clients. During a working session with the executive team, it occurred to us that the combined company had never articulated new customer (or employee) value propositions. At one point, we asked the straightforward question: “How does this deal actually create value for your customers?”. The absence of an answer from leadership was startling. A year later, an activist investor was in the boardroom and the CEO was out amid calls for a breakup.

The value creation logic will vary from firm to firm. For deals of significant size, the logic always features significant cost savings components (scales economies, tax inversion strategies, etc.). But M&As also present an opportunity for firms to significantly increase the value of their products and services to customers. Smart deal-makers realize this top-line advantage by building a plan to win that operationalizes the value creation logic. These plans will include an expanded customer value proposition, updated strategies for key accounts, product enhancements and an expanded client servicing model that uses data and UX to enrich the customer experience, among other moves.

When Microsoft announced its acquisition of LinkedIn at $26B – the largest in the company’s history – they immediately articulated a new customer value proposition for the combined firms. Their investor presentation laid out realistic product use cases that showed how customers will benefit when Microsoft software is embedded into LinkedIn’s platform and UX.

Investors care about the cost base; customers don’t. In the M&A context, customer sentiment is clear: “I’m happy for you to bring new value to the table. Just don’t change my team”. Companies that operationalize the deal logic into a value-add for customers will simply create shareholder value faster than those that don’t.

3. Build a Culture That Keeps Faith With the Deal

Beyond the models and strategies, the deal’s value will ultimately be secured or forfeited through the actions of employees. Irrespective of the size of the deal, retaining talent, focusing teams and nurturing cultures is the most challenging M&A leadership task. It simply gets harder for mega-deals.

Success requires that the talent levers of the organization line up with value creation logic, which my colleague Helen Rosethorn in her seminal book calls “keeping faith with the deal”. This often includes reorganizing operating units around new capabilities, recoding sales scripts and customer engagement models, and reengineering operations. Heavy lifts, for sure. But tending to culture is probably harder and more important.

Nothing grinds post-M&A value creation to a halt like resistant culture. Mega-deals create change and ambiguity for large employee bases. The M&A stimulates the free-market dynamics among employees – basically, they become open to considering other deals. It occasions big questions like “How does my world change?”, “Am I still valuable?” and “What’s it in for me?”. Change is difficult to process at a human level; ambiguity is always interpreted negatively. To unlock the full value of the deal, leaders must frame the big move in the context of a deeper purpose for the organization, strengthening the employee value proposition by focusing not just on the “what,” but on the “so what?”

Satya Nadella was clear about how the LinkedIn acquisition fit into his broader goal of reanimating Microsoft’s purpose. Similarly, when Roche acquired Genentech, it ring-fenced the biotech’s vaunted talent and culture by retaining its identity and independence. Others have not been as successful.

When Xerox bought ACS, its largest acquisition ever, it correctly foresaw the need to swim upstream into higher-margin services. But the deal logic never panned out. Revenues failed to reach targets and the market cap had fallen 37% by the time CEO Ursula Burns capitulated to investors and abandon the vision, spinning out the old ACS business off in a stand-alone services play. While Xerox found some cost synergies, people and processes never coalesced around a shared purpose worth fighting for.

A merger is a unique opportunity to reimagine your business and brand. But the reality is stark: 70%-90% of mergers and acquisitions fall short of expectations. Prophet’s approach to M&A not only ensures that brand equity isn’t degraded but creates a new platform for growth through the development of a relentlessly relevant brand. This demand-driven approach is complimentary to driving efficiency of costs post-merger.

Relevance is the most reliable indicator of a brand’s long-term success. In fact, data from our latest Prophet Brand Relevance Index™ reveals that revenue growth of the most relevant brands have outperformed the S&P 500 average by 12% over the last decade on profitable growth.

It’s important to understand how to navigate this process, and mitigate the pitfalls that can derail or sub-optimize an M&A effort. This article will illustrate the key areas to focus on, and the opportunities and risks your business is likely to encounter.

The following potential pitfalls can be navigated if anticipated and addressed with a proper strategy:

• Inadequate alignment with business strategy – Brand strategy must be informed by business strategy and designed to support strategic objectives and intent.
• Too narrowly framing the merger as a “re-branding” effort – Mergers present a rare point-in-time opportunity to drive broader cultural and experiential change for a new brand or company.
• Minimal internal orientation and focus – Successfully informing, engaging and enabling employees BEFORE launching externally is critical.
• Approaching launch as a “one and done” effort – The initial launch is really only the beginning of creating a meaningful brand that is understood by consumers and valued by stakeholders.
• Lack of coordination, integration and cohesion – Centralized planning and rigorous program management are essential to ensure success across numerous, concurrent efforts.

After all, a successful merger is defined by the value it creates in the marketplace. Effective business and brand integration goes beyond eliminating redundancies, merging teams and unveiling a new name and logo. While short-term profits can be achieved through efficiencies and cost reductions, long-term shareholder value is created through a deep understanding of customers and the power of the brand.

Developing relevant offerings that appeal to your customers will accelerate top-line growth. Additionally, creating a relentlessly relevant brand will inspire, influence and compel consumer behavior.

4 Key Areas to Prioritize for Brand Growth

Over decades of M&A work, Prophet has identified four key areas a company should prioritize to power M&A growth:

1. Create a compelling “how-to-win plan.” This plan builds a comprehensive portfolio of company moves and customer-facing offers and experiences that deliver on unmet or underserved needs.
2. Develop a transformative brand purpose. Building a powerful brand purpose and narrative can unify a company and establish an aspirational north star.
3. Establish a motivating employee value proposition. This drives growth by engaging and inspiring employees to achieve their full potential and increasing the acquisition and retention of talent.
4. Prepare to activate your brand. Ensure that your brand’s external activation shapes perceptions, changes behaviors and drives business impact.