International mergers can yield some great benefits. They offer an easier and cheaper way in to access a new market and labour force as well as offering firms the chance to diversify their portfolio. But they don’t always succeed. In fact, studies have shown that 83% of mergers in general don’t boost shareholder returns. Here are a few points to consider if you want to get your international merger right.
Getting a good organisational fit
Having a good organisational and strategic fit between the two companies is key to any successful merger but it’s something that requires extra special attention when it involves firms from different countries. Organisational structures and administrative systems can vary greatly across nations. For example, the size of human resource departments differs across countries. You’ll need to assess the organisational synergy between the two and calculate how much time and money it will take to iron out any big differences.
Getting a good cultural fit
This often gets overlooked during the merger process but it’s just as important as organisational fit and is a key reason for international mergers failing. The cultural aspects of organisations are more difficult to measure than economic or structural ones, but things such as company norms and values, leadership style and employee behaviour have a bearing on performance and can vary significantly across countries and corporations. Some countries favour more rigid workplace cultures of orderliness, hierarchy and conservative traditions. Others are looser, collaborative and creative. Failure to address cultural differences can be fatal and there have been high profile mergers that have failed due to this, such as the doomed Daimler Chrysler merger.
Be thorough with due diligence
Carrying out due diligence is a crucial part of any merger or acquisition. It’s an in-depth assessment of a company’s history, objectives, operations and performance prior to striking a deal. It’s something that can pose challenges where international mergers are concerned as information might be more difficult to obtain due to bureaucratic or legal differences as well as geographic distance. Thorough due diligence will flag up any issues around organisational and cultural fit and will help make sure the valuation of the company is accurate. It’s advisable to make sure your due diligence team includes specialists with close access to the assessed company.
Good employee communication
As well as being robust with assessments on the company you’re planning to merge with, you also need to prepare properly regarding your own team. Employee communication is ranked as the 2nd biggest challenge (after cultural fit) with mergers, according to a 2017 PwC study. If kept in the dark, employees can become fearful and disillusioned which can affect company performance and staff retention levels. This was the case with the failed BenQ Siemens merger in 2005, where a sudden and badly planned merger led to employee dissatisfaction and high turnover. Good change management requires communicating effectively with employees before, during and after the merger.
Don’t forget the macroeconomic factors
Finally, have one eye on the wider situation and any likely developments that might affect the likelihood of success. Although mergers are very company-specific, the economic climate does have an influence and you’ll want to think twice before investing somewhere predicted to be heading into a downturn. National and international legislation can also enable or obstruct mergers, so give that some consideration too.