Purpose driven business models can make all the difference for companies leading up to a merger or acquisition.
Australia is on track for its biggest year in M&A yet – more than $82.8 billion worth of deals have been announced so far this year, well above the average over the past five, and as reported widely, it looks like we’ll finish 2021 with historic levels of investment.
But for all the talk about mergers and acquisitions of late, CEOs need to ask themselves whether both they and their executive teams have the basics in place to ensure long-term M&A success.
Experience shows that many don’t. While periods of post-crisis corporate reflection often spark strong periods of M&A, they should also spark discussions among the C-suite about whether their corporation has its purpose right going into, and establishing, a newly merged company or acquisition.
Below are five purpose-driven tips for CEOs to ensure your merger or acquisition is a success.
Do your due diligence
Make sure you are prepared for the blending of brands, cultures, staff, stakeholders and executive teams by having your new company’s united purpose defined well in advance of the merger.
A united purpose is the glue that keeps a newly formed organisation together and ensures its success. It’s critical that questions about purpose are raised and answered by both companies well in advance of the merger being finalised.
How do you do this?
Through a solid diagnostic that involves taking the temperature of staff and stakeholders by way of in-depth consultation, to capture overall mood and feel about the organisation and the future. This ensures the two merging companies are aligned in what they are trying to achieve as separate entities, and what can be achieved together.
The results of an in-depth diagnostic of this kind are one of the most powerful things a CEO must have going into a merger and it helps to work out how to blend the best of both cultures when two purpose led companies come together.
Don’t presume the bigger company has the best of everything
Be open-minded and not arrogant when companies align, so you don’t lose the best elements of each.
One of the mistakes many CEOs make is presuming that the bigger company in the merger has the best of everything, when in many cases the smaller company, if it is more of a takeover, can have better culture traits to build on – more innovative, imaginative and nimble, and less bogged down by bureaucracy.
Even if the bigger company already has these advantages, the smaller company can still bring a great deal to the table. When Nippon Paint acquired DuluxGroup in 2018, it recognised DuluxGroup as an attractive acquisition due to its profitability, future earnings growth and its culture of innovation.
Build a strong purpose for the merged entity
From there, it’s all about building a really strong purpose for the merged entity – through collaborative consultation with the new leadership team, staff and stakeholders, to engage them in the process and drive a deep sense of ownership of the strategy, and why they exist as the new group.
Staff need a reason to work every day, aligned behind a common goal. They will be more driven, your customers benefit, and you’ll grow faster and more efficiently.
When people don’t have a connection to purpose or reason to be working where they do, you’re likely to lose good people – a risk that is intensified during mergers and change environments if not well managed.
This is why having senior executives take ownership of defining the merged company’s new purpose and moving it forward as part of an ongoing strategy is crucial, especially when they can be the first ones that actually pull the whole thing apart.
Get it right and the rest will follow
The argument that purpose-led transformation leads to better profits and growth is not a new argument. Data shows that it does. Even Larry Fink’s BlackRock refuses to invest in companies that are not truly purpose led as it drives growth, engagement, innovation and results.
Purpose driven companies often have the competitive advantage when they are actively seeking to buy or merge.
By being purpose-led you may be seen as the ‘merger’ or ‘desirable parent’ of choice, particularly if it is a member-based organisation.
In a highly competitive market this could be the edge and help tip a deal into the accept or reject bucket.