Russ: Welcome back to The BusinessMakers Show, brought to you by Comcast Business, built for business. My guest today, Connie Barnaba, the author of Why Business Marriages Fail; Connie, welcome back to The BusinessMakers Show.
Connie: Russ, it’s great to be back.
Russ: You bet. So when you were here before it was generally about your consulting business. Along the way you started really emphasizing and focusing on Mergers and Acquisitions and now we’ve got Why Business Marriages Fail. Tell us about that.
Connie: Exactly, exactly. Well the last time I was here I was just starting the research and now it’s been a kind of a journey, I’ve got the book and now I know why they fail so I wanted to tell everybody else why.
Russ: Fantastic. Well I think I’ve told you this before, but I’ve been involved in probably four mergers. My companies were acquired, I acquires a little one, I don’t know if that even counted, but – but man, uh, one of the four was successful, uh, one of them was, you know, a little bit better than medium and the other two was – were disastrous. Was that better than normal or?
Connie: Right on the money about 50%. If you describe failure as destruction of value, half of U.S. businesses that attempt these acquisitions not only miss their financial targets, they actually destroy value and I wanted to find out why.
Russ: Okay. Well how did you find it out?
Connie: Well, I did that by interviewing the people that really would know; the people that do a lot of these deals. And I wanted to talk to people, um, in various roles; so I didn’t want to just talk to the CEOs, not just to the attorneys or the CPAs or the valuation people or the private equity investors, I just wanted to get a really good, um, uh, what we call 360 look to see if there were any, um, factors that this diverse group of experienced dealmakers would agree on.
Russ: Okay, and were there?
Connie: Absolutely there were.
Connie: The first one, pretty obvious, is that by combining one strong company with another strong company doesn’t automatically mean you end up with an exceptionally strong company. That’s part of that track record with half losing money. Another thing that the experts agreed upon, uh, was that, uh, you really need, uh, 3, uh, ingredients for a successful deal, okay? You need a good strategy, you need the right target, and you need the ability to execute the deal and that seems to be where a lot of these deals are going south, okay? They got the right strategy they may not have the right target – they’ve got a right strategic target – but the ability to execute becomes a significant factor. And the experts said one other thing and that is that, uh, the current for evaluating the target business, um, overlooks a significant risk factor and that’s the cultural differences between the two businesses.
Russ: Well that’s what I experienced most often and see most often. You know, even a couple of them seem like maybe the – maybe the cultures were compatible but through the due diligence process and the hey, who’s going to get this job and who’s going to be the CEO, you know, dissention sort of broke out that never seemed to heal and get back in sync.
Connie: That’s exactly, exactly what’s happening. As a matter of fact I think we really tend not to pay attention to the cultural piece because there’s so much focus on the financials and the risk that’s associated with the financials; or the legal issues, or the changing marketing conditions. They go through, you know, they go through these deals with a fine tooth comb scrutinizing all of that, but they never, um, really, um, focus on the execution – the ability to execute the deal and the risk that’s involved with that. And when you have two companies that are successful kin their own right for a long period of time and you try to integrate those business operations it’s very difficult because the stronger the two companies are, the more difficult it is to integrate. They’re both, you know, we know how to do this, okay? You acquired me because I can do something that you don’t know how to do, right?
Connie: Right? And so it not only creates the conflict but you’re absolutely right when you say it never seems to get resolved because people, um, grow up in a culture. You know, it’s something that happens over time; it’s conscious, it’s subconscious, it’s just the way we do things. It’s why we’re so good at what we do. And if you ask people to change what they know works, you’ve got a real problem.
Russ: Oh absolutely.
Connie: You know, in this country we fought wars to preserve a way of life, to preserve a culture right? So it’s something that’s really deeply embedded in people. And even after the decision is made they’ll still fight for the right way to do it.
Russ: Oh yeah. Well it sort of sounds like, I mean I’m maybe over simplifying what you’re saying but, uh, but it’s – it’s culture and execution and, uh, most of us that have done it have experienced the culture thing. On the execution side, you know execution is just difficult no matter what – even when you’re not necessarily merging – but when you’re merging two successful companies the way for execution has changed enormously, it’s like starting over and, uh, it’s hard.
Connie: Well it – it’s particularly hard because if you get two successful companies typically those companies have lined up their people with their business strategy, okay? And people know what to expect, they know, um, they know what the objectives are, they know what the technology is, they know how communication works, they know what their jobs are and how to do them. Okay and they’re very good at doing that, no question about that. But when you, uh, try to integrate that you’re breaking those people apart from that alignment to this company and this company and you’re trying to create something all together different and there’s a risk there.
Russ: Right, absolutely. Okay, so what do you advise when people are considering a merger and acquisition? I mean is there a way – a formulaic way to avoid those two areas of – of tremendous challenge?
Connie: Well absolutely. There’s a lot that’s involved and I’m just going to try to condense here just in a little bit, but it’s very much like a personal marriage; there’s a lot of similarities between personal marriages and business marriages. And I’m not just being, um, you know, creative about how I describe it. You need to take your time, um, about getting to know, um, the culture of the other business; uh, especially at the leadership level if you’re going to merge leadership teams. Because if the leadership teams are in conflict – the members of the leadership teams are in conflict – they don’t have a prayer of leading everybody else through the change, right? So that’s one significant issue. Uh, the other is that, um, these – these people that I spoke with, these – these experts, they didn’t talk – they talked about the culture clashes but they didn’t talk HR terms like I’m going to talk with you.
I mean, they talked about the leaders not getting along or seeing eye to eye on the strategy. They talked about, um, transparency of communication; who’s got access to information, is it something that’s wide open – shared pretty openly in the organization or is it something that only a few people have access to?
Russ: And they kind of become a ball hog in the deal too, sure.
Connie: Uh huh, it becomes something that becomes almost like, I’m missing the word here – but something that’s valuable, that you horde; because the people in the know tend to be the people that you want to get to know and get the information from. The other thing is its decision-making style. You know, uh, in some companies, you know, the experts said, you know, some – some of these cultures are command and control, you know? Um, we’re the decision-makers, uh, we’re the authority, uh, this is where we’re going, we’re going to climb that hill, we’re going to do it tomorrow, um, go; do it. You know? It’s either, you know, get on the bus.
Russ: Or don’t.
Connie: Or get off the bus, right? If the company that’s been acquired, uh, has a more participative or culture it can create for distrust and lack of collaboration and people just exiting period. I don’t like this, I don’t have to be here and stay here. I’m not taking these orders; I’m not in the military.
Russ: Right, right. Do you ever get brought in after the acquisition’s happened and there’s problems?
Connie: The ideal thing would be this like marriage counseling before the marriage. You don’t get into a marriage – a personal marriage – and then say oh gee, it looked pretty good going in and now will you help me get out? A lot of reasons for that; one there’s an emotional investment, there are financial investments, there are legal ties, there are all these things that make it very difficult to extract yourself from the real marriage. So the ideal thing is to do your diligence – all of your diligence beforehand, yes. So I would suggest is that, um, a part – an essential part of the due diligence process should be a cultural assessment to see, um, what the disparities are between the two cultures and what changes are expected, uh, by the, uh, by the strategy, okay? So if we’re going to go from here to here to here what has to change? Who will those changes impact and what processes will it impact, okay?
And how do they do it in this company and how do they do it in the other company? And then what are the implications for really having that integration occur? You just – you have to have a people strategy that supports the business strategy in other words.
Russ: Great. Okay, I assume you can get this at Amazon.com and all the regular book places around, is that right?
Connie: Uh, you can get it online at Amazon or Barnes and Noble.
Russ: Okay, great.
Connie: And I’m just thinking it’s great for big businesses because it’s about mergers of larger businesses, but it’s also great for smaller businesses that are thinking about taking on a partner to expand capacity. The same advice is a good fit.
Russ: Cool, cool. And if they want to get in touch with you how do they find Connie Barnaba?
Connie: Oh that’s really easy, www.businessmarriages.com.
Connie: Okay? Connie Barnaba, Barnaba and associates.
Russ: Well Connie thank you so much for sharing your perspective with us and telling us about your book.
Connie: It was my pleasure and thank you so much for having me back.
Russ: You bet, absolutely. And that wraps up my discussion with Connie Barnaba, author of Why Business Marriages Fail. And this is The Business Makers Show, brought to you by Comcast Business, built for business.
brought to you by