Mergers and Acquisitions For Dummies (93 page)

Eliminating duplicate staff positions:
To cut to the chase, this term means firing people. It's harsh, but it's life; trimming excess staff and duplicate positions is probably one of the ways you expect to improve profitability. Head to “Firing people” later in this chapter for more on letting unnecessary employees go.

Switching up the management team:
Immediately following the announcement of the deal, you should internally discuss the role of the acquired company's management. To replace or not to replace the management team: That is the question. It's a decision Buyers make on a case-by-case basis. You may find that you want to replace the Seller's management team for any number of reasons: the old team isn't up to snuff or constitutes duplicate positions after mixing in with your management, or you simply have another team you want to run the acquired company.

Banking and financing:
Post-closing, the acquired company may find that its banking relationship changes. The acquired company begins to use the parent company's bank (or a bank of the parent company's choosing). The financing may also change because the parent may be able to negotiate better terms on short-term borrowing with the combined assets or cash flow of the parent company and the acquired company.
Better terms
is synonymous with lower interest rates.

Some PE firms partner with an experienced executive and acquire a company specifically for that executive. In these cases, Buyer may not want or need the management team of the acquired company to be a part of the company after the deal closes.

Handling Personnel: Successful First Steps for New Owners

M&A is a human activity, and people are involved more than ever after the deal closes. The biggest trick is getting the acquired employees' assorted and disparate goals, aspirations, plans, and motivations in alignment with those of the new owner.

The single, biggest expense of most companies is personnel. If you as a Buyer don't know how to successfully work with and intertwine the multitude of personalities between the two entities, you're in serious danger of ending up with a failed business.

Luckily, the following sections present you with a guide to squaring away the personnel situation right out of the gate.

Addressing cultural differences

For most deals, culture is the biggest issue. No two companies have the same business culture, and geographic differences can exacerbate those cultural discrepancies.

Speaking in very broad terms, the cultures of U.S. companies can differ wildly from region to region. The culture of New York City varies from that of the South. Midwestern states have a different culture from Southern California. Heck, even the culture in eastern Washington State can differ drastically from the culture in the western part of the state.

But what are these cultural differences, and how do they manifest themselves in business and in the integration of combined companies? In my experience, cultural differences go far beyond the simple and obvious differences. Speech mannerisms, for example, are simply cosmetic; in the following sections, I address a few of the deeper cultural differences I've encountered while integrating companies.

Don't assume the culture of the acquired company is the same as your culture. One of the biggest mistakes managers can make is to have what I call cultural myopia, where they fail to even consider cultural differences.

The boss as the all-knowing deity: Large versus small power difference

Geert Hofstede is a Dutch researcher who uses the term
power distance
to describe how members of a society interact with their bosses. (If you're not familiar with Hofstede's work, I recommend you check it out.)

In cultures with a small power distance, subordinates respect the boss but also voice their opinions, which often disagree with the boss's. Subordinates in cultures with a large power distance tend to view the boss as unfaltering and all-knowing; as a result, underlings rarely if ever speak up and give their opinions, especially if those opinions contradict the boss's opinion. They just assume the boss knows everything.

As Buyer, you have to be aware of both your and your new employees' views of power difference; otherwise, you run the risk of creating confusion or misunderstanding. For example, in a previous life, I ran a bunch of retail stores, one of which had a problem with two employees who were frequently at odds.

I questioned the store manager; she told me the two employees in question “hated each other” and constantly fought. When I asked her why she scheduled them on the same shift, she answered, “You never said anything, so I thought it was okay.”

Her comment made our differing views of power distance readily apparent. I grew up and spent most of my adult life in Chicago, so I assumed my subordinate would tell me of a problem, or better still, take charge and make the executive decision to not schedule the fighters on the same shifts.

This store was located in rural Georgia. Due to her cultural upbringing, the manager viewed me, the boss, as an all-knowing entity who obviously knew of the problem; because I never said anything, “it was okay” to continue to schedule the fighters on the same shift.

Study the cultural biases and approaches of your new partner. You may have to ask exacting questions in order to get to the heart of the matter. Due to cultural differences, a subordinate may just assume you already know all about a situation and therefore may not tell you the full or accurate truth.

You can use power distance to your advantage. If you suspect a problem (and you don't mind putting on a Machiavellian hat), you may be surprised at what comes out after you simply state, “I know what's going on, so just tell me.”

Direct communication versus the bypass method

Another cultural difference that I've observed is in how management communicates with employees. In a very general sense, cultures in Latin America, Asia, and the southern United States tend to use the
bypass method,
which gets to a point in a roundabout way. Those who utilize this method often hear simple statements like “Clean up the wording in that contract” to mean something like “You're worthless; that contract was terribly done.”

Instead, when speaking with a bypass method user, you need to say, “You did a great job with that contract. I know you worked really hard; I have just a couple of little things I need you take a look at, and maybe you and I can tweak the language a little bit.”

Northern U.S. culture and Western Europe tend to be more direct. Those cultures don't mince words. And of course, New York City is in a league of its own — it's possibly the most direct culture on the planet!

One of your primary objectives is to provide clarity, deepen understanding, and increase commitment. Take the time to determine how best to communicate with your newly acquired company, including employees, the management team, and customers and vendors. Failure to understand the differences of how cultures communicate can cause unwanted and unintended consequences. Do they communicate directly or use the bypass method? Direct communication with a culture used to the bypass method causes irritation, and worse, jumbled and misread communication.