Avoiding Deal Breakers: How to Instill and Build Trust in the Merger Process

November 17, 2016


By Gerald Adolph, former Principal, Strategy&, part of the PwC network & Reid Carpenter, Director, The Katzenbach Center at Strategy&

deal-makersMerger and acquisition activity exceeded a record-breaking $4 trillion around the world in 2015, and 2016 is shaping up to be another banner year. While many of these deals will succeed and exceed expectations, a percentage will fail. And some transactions will crash and burn before the post-merger integration even begins. We’ve noticed that many times deals go wrong for reasons having nothing to do with the ability to realize synergies or the potential for the new entity to serve as a platform for growth. No, mergers can go bad when one party loses trust in the other during the deal process.

Leaders can avoid such issues and rebuild frayed bonds if they accurately diagnose the cause of the breakdown in trust and communicate proactively.

When confronted with such issues, the first order of business is to understand how the breakdown happened, and whether or not it was really about trust. Breakdowns can often stem from concerns and issues surrounding the sharing of information during the negotiation and due diligence process. Executives at Company A may sometimes feel as if their counterparts at Company B didn’t revealed key information. And of course, in the process of courting and negotiation, it is natural for people to feel there have either been omissions or misrepresentations that give rise to a lack of trust. They’re negotiating, after all; most people don’t put all their cards on the table in early negotiations. It’s also possible that the misunderstanding arose from an accident of timing: the honest answer given to a question asked today may turn out to be not true a month later, if circumstances change.

Leaders have to determine whether the issue was the typical (and acceptable) level of sleight of hand and posturing that often takes place during negotiations, a misperception, or actual lying. And if it is found that a negotiating partner was not truthful, leaders have to determine whether the party was acting on behalf of the company, or was a rogue actor. If a rogue executive’s behavior is the root of the trust problem, one solution could be for the leadership of the company to decide that that executive won’t be continuing with the merged organization.

This is the sort of distrust that is a function of the transaction they’re currently involved in—something that popped up in the moment and perhaps can be dealt with in the moment. But long-term and systemic issues of trust can also build up, perhaps because of the history of the two organizations and their business practices.

Most sectors are extremely competitive. And before transactions, the two parties will have likely spent years – or even decades – battling ferociously for market share and talent. It could be that in the normal course of intense competition, even before the deal came up, people in Company A’s organization came to believe, rightly or wrongly, that Company B didn’t play fairly in the way they represented themselves—or represented Company A—to customers.

A systemic, longstanding mistrust that was exacerbated by the negotiations will demand a different approach than an in-the-moment episode. After all, two groups of committed professionals who have spent years trying to outperform—and in some cases, to work against—their competitors, and who have thought of one another as enemies, are suddenly being told they are on the same team.

Leaders have to recognize the dynamics of such a situation, and recognize the existence of legitimate values and/or vision differences that can feel like trust disconnects—but really aren’t. Softer forms of this sentiment can be toxic. It may be common for people at Company A to complain that Company B doesn’t run its business as rigorously, or have the same controls, or maintain as positive a culture. This language, which, on its face, is about process, is actually a manifestation of the level of trust around how the business is being managed, and how good and competent the business managers and leadership are.

The challenge is to shift the way people approach the issue. Rather than making invidious comparisons, or dwell on the fact that Company A used to regard Company B in a certain way, leaders can highlight all the things their team used to hate about competing against the other company. Maybe Company B had better capabilities in certain areas, or had a knack for marketing, or a string of brilliant advertising campaigns. A more productive way to think about such differences would be to emphasize how one team can learn more about the practices that used to drive them to distraction.

It can be difficult to find virtue in fierce competitors. But organizations that aren’t willing to dig deeper and find the positive capabilities or values in the organization with which they’re about to merge will get bogged down — either during the negotiations, or, if the deal goes forward, as they try to make the new entity a success.

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Contacts

Bob Saada

US Deals Leader Tel: +1 (646) 471-7219 Email: bob.d.saada@pwc.com

Curt Moldenhauer

US Deals Solutions Leader Tel: +1 (408) 817 5726 Email: curt.moldenhauer@pwc.com