One definition of an optimist: a person who persists in the face of near-certain failure. Any entrepreneur considering a merger or an acquisition needs a hefty dose of optimism, because at least 60 percent of all mergers fail to achieve their goals, according to research by consulting firm Oyster International. That's partly because leaders fail to recognize that people issues are just as important as market synergies, says Mark Williams, a Bethesda, Maryland-based organizational psychologist and author of Fit In! The Unofficial Guide to Corporate Culture. "The informal cultural issues that can sink the merger are often underwater and underground," Williams says. And they're easy to ignore, because some of them seem insignificant--maybe the new boss sits next to her employees, whereas the old one parked at the head of the table. We talked to the leaders of three companies about the creative ways they found to blend multiple corporate cultures into one.
A Frat House Grows Up
Fuel Outdoor, a 55-employee outdoor advertising company based in New York City
The Deals In 2005, private equity firm Och-Ziff Capital Management bought Fuel and infused it with cash. Fuel then went on a spending spree, buying seven more companies.
The Problem When Fuel was young, it grew because of its founders' willingness to knock on doors and their enthusiasm for partying with media buyers. But the company, which owns billboards and other outdoor advertising venues, had little in the way of management structure. "We had a reputation of being a bunch of cowboys," says Mike A. Freedman, who joined Fuel's board in 2005, then became CEO after Och-Ziff acquired the company. Freedman knew the cowboy culture wouldn't fly with the new owners. "If you're representing a buttoned-down Wall Street firm like Och-Ziff, you have to think about how you're perceived in the marketplace," he says. He wanted Fuel to grow up without entirely losing its sense of fun. And he had to combine eight different companies into one. In August 2006, Fuel acquired Metro Lights, a New York City company that had the ambiance of a library. "The Fuel office was above a pizza parlor--it smelled like pizza and had music blaring all the time," Freedman says. At Metro Lights, by contrast, "nobody talked," he says. "When we came in to the office, it was like the huns coming in."
The Solutions Freedman instituted a dress code--employees don't have to wear suits every day, but shorts and T-shirts are now off-limits. Every employee now has a performance review once a month, and entertainment expenses must be justified. But Freedman also started a new tradition--an enormous Halloween party. And he invented a game to get employees thinking like a team. Anyone who says something like, "That's not how it worked at the old Fuel," has to put a dollar in a jar. The jar now holds about $6,000.
The Lesson Each acquisition requires a different approach. At one acquired company, the employees were too laid back; they didn't fit in with Fuel's competitive culture. Most left, which suited Freedman just fine. But he needed the staff at Metro Lights and wanted to blend its professionalism with Fuel's entrepreneurial drive. "I believe we unleashed their inner frat boys," he says.
Fools Rush In
Nelson, a $65 million interior design and architecture firm based in Philadelphia
The Deals In 2003, John "Ozzie" Nelson took the helm of the company his father had founded 26 years earlier and started acquiring companies rapidly. In four years, Nelson has bought 11 companies and expanded the business from 195 people in 23 offices to 575 people in 36 locations.
The Problem At first, John Nelson immediately reassured employees at the acquired companies that nothing was going to change. Sound great? Not always. At one acquired company, employees hadn't had raises in years. "People were direly unhappy," Nelson says. "They had hung on, hoping to get acquired by a white knight who would change things." When he promised to maintain the status quo, several talented people left, and Nelson didn't discover why until the exit interviews.
The Solutions Once he learned about the problem, Nelson sped up some much-needed pay increases. Now, rather than assuming the existing culture is sacred, Nelson talks with workers at the newly acquired companies about how the two businesses can work together. And he and his top executives hold individual meetings with new employees to learn their expectations.
The Lesson Don't assume anything. Employees at an acquired company may be itching for a change--or maybe not. The only way to find out is to ask.
Learning to Mambo
Beber Silverstein, a Miami ad agency with $60 million in annual billings
The Deal Beber Silverstein, which was founded by two women, acquired JGR & Associates, a male-dominated Cuban American public relations firm, in 1999.
The Problem Executives at Beber Silverstein didn't anticipate any difficulties when they acquired JGR. "That's how dumb we were," says Elaine Silverstein, the company's chairwoman. Jennifer Beber, the company's president and daughter of co-founder Joyce Beber, was accustomed to going out of her way to be collegial. In meetings, she deliberately avoided the head of the table and sat next to her employees. She also got them coffee and made her own photocopies. When she asked for something, she would say, "When you get a second, could you take care of this?" Her original employees knew that really meant, "I need this now." But the new workers didn't get it, because they were used to direct requests. Language created more barriers; many Beber Silverstein employees felt left out of the JGR employees' all-Spanish conversations. Though about a third of Beber Silverstein's original 50 employees were Hispanic, they didn't speak Spanish in the office. Breaking down barriers was particularly difficult because the former JGR employees were housed on a different floor than the original Beber Silverstein staff.
The Solutions The agency began offering lunchtime Spanish lessons, which were quite popular. Over time, the Cuban American employees began speaking English with other employees and Spanish with customers. Beber says she now speaks more directly and sits at the head of the table during meetings. The cultural differences dissipated further about five years after the acquisition, when the founder of JGR reduced his role; he fully retired in 2005. And in 2006, the company decided to integrate the PR and advertising staffs.
The Lesson Always mix new employees in with the old. Moving PR staff members into the same space as ad staff has improved relationships and helped the company serve its clients better. "It took us way too long to do it, and we would never go back," Beber says.