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When two companies become one, how do you ensure a return on investment? Mergers and acquisitions are on the agenda across the Asia-Pacific, a trend helped by favorable conditions, including supportive regulatory regimes and economic stability.
“We’ve never seen as much activity in the acquisition space as we have in the past three years, and it’s not stopping,” says Caroline Raynes, a Korn Ferry senior partner.
Leaders are telling her they’re looking to make multiple M&A deals over the next five to six years. “The first one has to go well, so the Board can see the return on investment and is willing to commit to more,” Raynes says.
Senior Client Partner Navin Wathan says he is also seeing increasing M&A activity in Southeast Asia as part of an innovation growth play. “Once an organization identifies a customer challenge they can solve with a new product or service, they can either build that solution—or buy it,” he explains. He points to Air Asia’s acquisition of Malaysia-based food delivery business Delivereat in 2021 as an example, enabling the airline’s expansion into digital logistics.
Not all deals deliver on their promise. Research published in the Journal of Management Studies points to acquisition failure rates as high as 75%, with many deals eroding the value of their purchase.
Often, the problem is that leaders spend most of their time on financials and market response—and not enough time preparing for the complexity of blending workforces, cultures, systems, and processes.
“When I talk to executives in the due diligence phase, I suggest they carve out 30 to 40 percent of their time to focus on the team, the capabilities they need, and how to minimize disruption in the organization,” says Raynes.
Here are four questions that successful M&A leaders address in the pre-integration planning phase.
It takes one type of leader to transact an M&A, but often a different type of leader is needed to lead the newly formed company’s strategy.
Leadership assessment is a critical step in the due diligence process.
“Don’t assume the same executive team will move forward with a new market strategy as part of a more complex entity,” advises Raynes. “You need an objective tool to assess capability and potential, because as you go through the M&A process, you’re also succession planning.”
She says successful post-integration leaders are able to deal with ambiguity and have learning agility. Their passion for the new business is also magnetic. “When they genuinely believe in their organization, people will follow,” Raynes says.
If you don’t have the right capability in your existing team to lead the new strategy, you might consider an interim hire with a track record of organizational change management. Crucially, however, Raynes says, “Don’t make a quick decision, make the right decision.”
An acquisition is not just the process of buying an asset. You’re also ‘buying’ talent.
It’s important to assess the capabilities, skills, and intellectual property that underpin the value of the organization you’re acquiring—and to clarify the capabilities your post-deal strategy will need.
“Work out the must-haves you need to be successful,” says Raynes. “What will make those people stay? What's the new employee value proposition? How do you get those people excited about being part of this new organization?”
When there is role duplication, hard decisions may need to be made. But this can also be an opportunity to reskill and redeploy talent, retaining their local market knowledge.
Leadership development teams play an important role here, planning for rapid upskilling and building a strong culture of learning agility.
If you’re the acquiring company, don’t assume the company you’re buying will slot into your existing company’s culture. This can be a fast-track to failure.
For example, the employees of an agile start-up won’t cope well with the institutional red tape that’s typical of a bigger business.
Wathan suggests two different approaches. “During due diligence, make cultural alignment a priority for company selection. If you share common traits, it will be easier to retain people, and move them between the different organizations.”
Alternatively, you can acknowledge there is a culture gap and keep the new entity at arm’s length. Let them keep their brand, talent and culture, and look for opportunities to work together strategically.
If the deal will result in an entirely new entity with new market opportunities, it may need a new culture.
“This is where HR leaders play an essential role as culture custodians in the organization,” says Raynes. “They understand what makes the business successful, how work gets done and what people value.” You can also engage a dedicated project team as ambassadors for culture change, drawing people who are strong influencers from across the organization.
Another strategic decision with culture impact is where your head office will be based. There may not be one HQ for the new entity.
“We’ve seen a shift to hybrid working, and some organizations are dispersing their executive leaders around the world in ‘talent hubs’,” Raynes explains. This can help improve diversity, and ensure a strong leadership presence in new regions.
Change can be challenging, and it brings a lot of anxiety and uncertainty—which in turn reduces discretionary effort.
“Once effort goes down, it's hard to win back,” Raynes acknowledges. “That’s why leaders need to support people to understand what they will need to do differently, and give them a sense of autonomy and purpose.”
Leading through change can be as simple as being generous with your time, being present, and showing up.
“Be transparent and honest,” Raynes adds. “If you don't know the answer, tell them you'll come back to them. Make the timeline clear and stick to it.”
Consistent messaging can also help people stay focused while also reducing anxiety. Your Day One Roadmap should include messages about the issues people care about, such as, “Can I still work from home? How does my reporting line change?”
Before due diligence begins, leaders will need to start making decisions about where they put their effort to get the greatest value and impact.
“A good partner can help you operate with speed, and also treat people with respect,” says Raynes. She gives the example of a mining company that needed to redesign its future organization before it embarked on an acquisition strategy.
“We assessed its leadership team capability quite early on. A big piece of work involved the employee value proposition, because they wanted to challenge the traditional way of working with an innovation hub,” she explains. This in turn reduced the need to pay the highest salary for talent.
“They needed to reduce operational costs to continue on their acquisition journey, so we helped them create an efficient way of working.”
Organizational design and talent planning might not be the first thing on the M&A due diligence checklist, but it can provide a rock-solid foundation for M&A success.
Plan now for post-merger talent integration. Download our M&A Day One Readiness Checklist.
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