M&A are about culture as much as commerce
Is the recent approval of the sale of Pioneer Foods to PepsiCo indicative of an upswing in M&A?
The strong currents of ongoing political and economic uncertainty (both in SA and in the global context) have made for challenging conditions when it comes to landing significant investments in mergers and acquisitions (M&A) on SA shores. But is the Competition Commission’s recent approval of the sale of SA food giant, Pioneer Foods to PepsiCo indicative of an upswing in M&A?
Most expert opinions and predictions are that we are not likely to see increases in M&A volume and value until about 2021 or 2022; and that remains highly dependent on whether there are enough signs, in the meantime, of economic improvement and the enhancement of the country’s investment environment.
While M&A prospects are more likely to mirror a growing economic crisis in SA, this year does bring a more positive outlook on the possibilities of new trade relationships being formed in Africa as the global trade patterns shift.
PepsiCo’s acquisition of Pioneer Foods, owner of leading brands such as Sasko, Ceres and Weet-Bix, might be an outlier in terms of current direct foreign investment into the country, but does highlight the opportunities that SA companies can present to multinationals aiming to grow their footprint on the continent.
While high-value deal-making is critical for SA’s economic growth, the current lull gives us pause to think about the way that we tackle M&A — particularly when it is estimated that at least more than 50% of large-scale mergers (in particular, as opposed to acquisitions) fail. (In fact, according to sources such as the Harvard Business Review, the rate of M&A failures is about 70% to 90%.)
The dynamics of people, culture and leadership are undeniably complex, but we cannot afford to shy away from complexity in the high stakes game of M&A
As in the case of PepsiCo and Pioneer Foods, the commercial reasons for the deal often make good sense.
Adding to shareholder, board and executive pressure, any financial and legal due diligence, and proposed deal structuring, usually make the deal attractive (at least on paper). Yet, despite this, M&A deals all too often end up eroding shareholder value and result in internal organisational disruption.
From the classic example of Daimler-Chrysler to the more recent America Online-Time Warner debacle, what M&A have taught us is that people, culture and leadership inevitably turn out to be more difficult to get right than the numbers. Culture requires a special kind of attention and skill set.
In essence, a merger or an acquisition is an epic, organisational change. Yet, all too often it is treated as financial and legal issues that can be solved through a narrow lens. The truth is messier — and more vibrant. The dynamics of people, culture and leadership are undeniably complex, but we cannot afford to shy away from complexity in the high stakes game of M&A.
A systemic change implementation process that includes effective culture diagnostics, identification and support of committed leaders and in-depth stakeholder engagement is essential to achieving the commercial aims of a merger or acquisition.
It is most often the sensitive and political dynamics of an organisation that undermines the successful merger of two entities (the case studies mentioned above illustrate this clearly) and these dynamics need to be thoroughly understood so that risks and misalignments are laid bare.
Only at this stage might company integration strategies and solutions be formulated and implemented to ensure the bringing together of two distinct companies in sustainable and value-accretive manner.
I would strongly advise that this critical evaluation of people, culture and leadership be done pre-deal, hand in hand with legal and financial due diligence processes. As M&A’s track record shows, not every deal is a good deal.
• Rothgiesser is MD of The Change Consulting Group.