When a merger or acquisition project is launched, due diligence is an essential step. A financial process above all, it also has an HR component. But too often its focus is mainly on existing or future financial liabilities. It takes too little account of the purely “human” dimensions of individual and collective commitment. And it always stops at assessing the “risk”, rather than addressing it in order to succeed.
Let me tell you three short stories – real or imaginary – in which some readers may recognise themselves.
The Junkfood case
This is the story of a small company, Alpha, which grew over the years and, as is often the case, struggled to pass the 50-employee mark. Not for the social reasons one might imagine, but because of strategic differences between its leaders (whether to consolidate or keep growing, in particular).
After a few key departures, the company is in danger, and the remaining partners decide to sell before its value collapses.
A much larger company, Bravo, buys them out. It operates in a related field. Some people – including some of Bravo’s executives – think the two businesses are complementary. But in practice, many fail to understand the added value of the Alpha teams, who certainly generate profit with very original services, but sometimes at the expense of Bravo’s classic services – backed by a reassuring legal framework – for which they can be a substitute.
So, to make the integration succeed (or to impose it?), Bravo executives are put in charge of the Alpha teams… And the employees from Alpha are forced to join the Bravo teams, more or less completely, and in any case to accept a subordinate position, complementary rather than competing. Because there is the absorber and the absorbed…
Very quickly, almost all of the Alpha teams leave the new group, and this failure also prompts the departure of some disappointed Bravo executives…
The outcome: a failed acquisition for Bravo, financial gains for the former Alpha leaders who stayed for the period agreed at the time of the sale, and a great deal of human damage.
The Moneybags case
Edouard founded his company, Charlie, 35 years ago. Rather paternalistic, he recruited a small, rather docile team to offer more services to his clients. Things tick over nicely, to everyone’s satisfaction.
But the years go by, and here he is celebrating his 70th birthday… Still going strong, he nevertheless wants to extend his success. But at home, he is wanted; he is called to reason… Is he ready to enjoy his house and garden, and lift his feet when the vacuum cleaner comes past?
He then finds a halfway solution: selling his small company, but with an original arrangement.
Rather than selling to a company in the same business – which would naturally absorb “his” clients and “his” team into its own – he finds a company, Delta, whose business complements his.
To give Delta control of the acquisition of Charlie, a company called Charlie-2 is set up to buy Charlie’s business. Delta holds the majority in Charlie-2, Edouard holds most of the remaining shares, and the balance is shared among a few key employees.
As owner of Charlie and major shareholder of Charlie-2, Edouard is happy, because:
- he has received the proceeds from the sale of Charlie (the shares of Delta and of the employees);
- he remains in charge, because the profitability of Charlie, and then of Charlie-2, gives him all the autonomy he wants vis-à-vis Delta;
- and he has thus shown signs, at home, of “stepping back” – at least eventually…
Until the day some of Charlie-2’s employee-shareholders start wondering why he is still running the show… No departure date was ever formally set, but the creation of Charlie-2 was supposed to serve as a transition, wasn’t it? And becoming a shareholder, even with a very small stake, meant taking part in the “governance” of Charlie-2, didn’t it?
Edouard is furious. Do they want to push him into the grave? Because that is indeed the feeling – conscious or unconscious – of many company founders who sell, under the pressure of age or other factors, to “outsiders” or even to their own family… For them, selling is a little like dying… And while some face this situation calmly, others do not.
You want my place? Then pay for it… So he offers to sell his shares, while announcing that he will continue his activity and that, of course, “his” clients will follow him… And he sounds out a few employees about following him too…
But since nobody is willing to pay the price, and in line with a well-known “grieving” process, he then rebels and demands the heads of those who, in good faith or not, had understood – or believed – that he would leave quickly…
At Delta, burned by this unforeseen conflict – no doubt believing that the “transition” would happen naturally – they are considering dropping the whole thing… Will they find someone to buy their shares, or will they abandon everything? In the meantime, at Charlie-2, people fear a rout…
The outcome: an acquisition that looks set to fail for Delta, a financial gain but plenty of worries for Edouard. And at Charlie-2, human damage… As for the image of an original and rather widely publicised tie-up, Delta will pay the price for that too…
The Friendsbutnotthatmuch case
Clément founded his company several decades ago. He was not born into the business and is particularly proud of his success. And rightly so, because Echo is flourishing. Several dozen employees, results that make others envious and recognised professional quality in its market. He is a happy man.
Happy, but far-sighted, because he does not rest on his laurels and keeps a close eye on his professional environment, which is undergoing major transformation. Echo must keep growing as he has grown it, with cautious external growth, through companies that share his care for his teams and for client relationships. But growth needs to accelerate, because time is short.
His friend Jérôme also founded his own company, Fox, in the same businesses. Fox grew faster, on a more industrial than craft model, unlike Clément and Echo. The quality of service perceived by the market suffers. But that doesn’t matter, because Fox’s financial success makes others envious.
The marriage is announced. A balanced union in words, but not in fact. Because Fox’s teams are far larger than Echo’s. And Fox’s “industrial” structure relies on processes that “simplify” flows and rationalise practices. It will no longer be tailor-made, of course, but that is the price of successful growth…
And why not? Because for Clément, to succeed you just need to want it badly enough – his personal story proves it… and everyone will surely find their place, won’t they?
So Clément and Jérôme will do the deal. As for the practicalities, “the logistics will follow” (as the French saying goes)…
The processes are put in place… Duplicate positions are eliminated, Fox’s systems absorb Echo’s flows, and employees are allocated, mechanically, within an extended matrix based on Fox’s organisation.
For many, the nature of their “human” commitment then changes. A few of Echo’s key talents are recognised in the Fox organisation – which, incidentally, provokes some reluctance among those who thought they were “dominant” and therefore protected… But most lose the freedom – and creativity – they had in their “craft” structure. Less organised, but more liberated.
In these Echo teams – and, as always, among the most talented, who are more employable than the others – there is an exodus. Having to mourn Echo, they prefer to do so somewhere other than at the source of their disappointment.
And at Fox, many of those who had welcomed the arrival of these talented craftspeople resign themselves to the usual mechanical ways of working, at the expense of a creativity they had perhaps hoped to exercise, given what they had expected from their new colleagues and a new shared adventure.
The relationship between “sales” staff and their clients also changes: clients are “reassigned”, and “industrial” practices leave less room for the “tailor-made” service that had made Echo’s qualitative success. To explain the rationalisation and mechanisation of the organisation and flows, people of course talk about the necessary “digitalisation”. A catch-all word, a magic word… But one that is associated, deliberately or not, with mechanisation. Whereas it could also free up time to devote to the “craft” quality of client relationships.
Some of Echo’s clients therefore follow to Fox, mechanically. But others, disappointed at losing the quality of service, go to the competition.
The outcome: a failed acquisition (even if it does not say its name), both for team performance and for the image of Echo and Fox… And human damage on both sides. Probably including for Clément and Jérôme, who until then had rightly enjoyed complete success.
What do these three situations have in common?
No bad intentions
Let us assume that, in a merger or acquisition, everyone is driven by good intentions.
Of course, there may be exceptions, in particular:
- a seller who wants to overstate the price of their company, and therefore the benefits promised to the buyer, in order to extract the greatest value for themselves. But due diligence, when it is thorough, is there to reduce this risk;
- but it may also be a buyer who wants, through this operation, to “kill” the competition. This is not so rare, even if expected synergies – more virtuous than a destructive project – are always announced. In this case, the “damage” inflicted on the other matters little… provided, too, that the damage suffered by one’s own structure during the absorption is kept as low as possible…
Nevertheless, to guarantee mutual goodwill, the integration process can be “secured” as far as possible. This is often done in particular for the period during which the “seller” stays on in the new entity. To reassure clients and teams… But while staying on and/or leaving can be framed “legally”, it is always difficult to do so for more qualitative factors, linked to personal commitment…
One can also try to clarify certain ambiguous points. But clarification sometimes brings out a conflict that nobody wants, and that people hope will resolve itself over time… And ambiguity also has its advantages, because it is a space of freedom, of dialogue, and therefore of creativity.
So, even if intentions are good on both sides, difficulties can arise for several reasons, in particular:
- The reality of reality: we often see what we want to see. And the projection of our wishes sometimes becomes our “reality”. To avoid this, bringing in a third party makes it possible to bring sometimes frustrating “realities” to light (even if, in a state of denial, one may then sideline the bearer of “bad news”);
- And the autonomy of people and organisations. For various reasons, linked to their environment, their history, their “culture”, individuals and organisations may “drift” away from their own intention. Fully consciously or not. That is why supporting transformations requires particular attention, free from operational pressures (because “business goes on during the works”): rigorous, benevolent, mobilising, alert to what emerges and therefore adaptable…
These drifts do not stem from lies, but simply from the necessarily imperfect nature of knowledge, and from the constant emergence of socio-technical phenomena.
Because, of course, lying must be ruled out. For moral reasons. But also for reasons of effectiveness. Towards one’s partners in the merger or acquisition project. And towards the teams on both sides. Especially for those who stay… Because while attention focuses on departures, for legal and financial reasons, we always forget those who stay, and who will have to live through the hardest changes.
Taking the “human factor” into account in running the project
In these three cases, both parties considered above all the financial side of the operation and the legal conditions. And since the figures add up, or even multiply, tie-ups are often seen through these lenses.
Of course, there will be a “valley of tears”, as everyone knows. But it will be a period of “digestion” that people hope will be short – because people are “reasonable”, and profits will soon return. At least, that is what people believe and/or make others believe.
So, when a merger or acquisition involves substantial tangible assets (premises, machinery…), or protected know-how (patents…) that teams other than those who developed them can easily put to use, it can be carried out by favouring a “mechanical” route.
Technical and human means of action are added together. Costs and expertise are pooled… thereby increasing both the turnover and the profitability of the enlarged structure.
It is not very “benevolent”, but it is “simpler” (even if simple is not easy).
But when an “absorbed” structure also owes its added value to “affective” dimensions – whether between teams, with clients, or even with “products” – change can turn into “rupture”. Including, incidentally, for the teams of the “absorbing” structure, who will nonetheless have to deal with recognised talents who will probably bring part of their professional identity with them and may, implicitly or explicitly, call into question the habits and practices of a whole that was nonetheless perceived as infallible because it was dominant…
Because while the figures add up, or even multiply, the socio-technical complexity inherent in human groups can quickly lead, if neglected, to a system far from equilibrium.
This “entropic” dimension can then, in the best cases, give rise to a new and unexpected equilibrium (A plus B becomes C): this is, for example, the result of transformation projects run by favouring self-organising practices (self-organised, admittedly, but monitored and supported). Or thanks to luck (and you always need at least a little)…
But when this chaos is endured rather than chosen, the system can fall completely out of equilibrium, and explode (or implode).
Merger and acquisition projects are not only technically and financially complex. For many, they are also humanly complex. And when this dimension is not taken into account, in the initial analysis and in supporting the tie-up, failure is inevitable. Because while the logistics may sometimes follow, the human factor is never governed by logistical principles alone.
It is therefore important to organise the project according to “rational” principles, while also keeping room for manoeuvre that will make it possible to absorb the unexpected but also everyone’s creativity, and therefore to seize emerging opportunities, which by their nature are unplanned.
Making do with what you have – “effectuation”
There are fashionable words in the world of companies and organisations… Often English terms carried by international management trends, and sometimes gallicised – often for the worse.
For example, there has been a lot of talk about governance, serendipity, agile, frugal… Now the term “effectuation” is appearing. It describes a way of launching a project with the means at one’s disposal and accepting the associated risks, rather than waiting for an “ideal” situation…
In mergers and acquisitions, as in other contexts, one always has to make do with “what one has”. The teams of one and the teams of the other. The strengths and talents. The weaknesses and misgivings too. Especially when the “service” dimension is important in the businesses concerned. Unless one has unlimited resources (which rarely happens), and treats individuals as things (which is more frequent)…
This is often frustrating for ambitious people whose will runs into the wall of reality.
But this “constraint” (or rather, this reality) forces us out of a comfort zone towards which our rational thinking, turned towards ideals, pulls us.
Because making do with what you have means agreeing to operate within constraints. And therefore forcing yourself to find original solutions.
Of course, this runs counter to procedural and bureaucratic thinking, and it requires accepting uncertainty and risk-taking…
But isn’t this also what gives meaning to our lives as entrepreneurs and intrapreneurs? Making do with what we have rather than claiming an inaccessible ideal – and inevitably blaming others for our failures, our weaknesses, our lack of creativity and courage?
So, for your merger and acquisition projects as for all others, always embrace the richness of the “human factor”: build on it and bring it to life, on your own or with the support of professionals!
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