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Consultant on the Coke-Huiyuan deal and global M&A

(chinadaily.com.cn)
Updated: 2008-09-16 17:11

Q: What are these cultural issues?

A: We do M&A surveys from time to time, and consistently we hear that integrating culture is the most difficult issue companies face in an M&A.

Lots of deals failed because of these types of challenges. Part of this is because cultural issues are hard to quantify. It's more about feeling or judgment. With cultural issues, it's difficult to put a number on it.

As a result, the mistakes many companies make is they may discount the issue, the magnitude of the issue. The cultural issue is more significant than the financial issue, because if you go back to our views, people are the essence of the business in the context of an acquisition, so how you treat people, how people work together, is critical to how successful that acquisition will be.

One of the things we encourage companies to do in due diligence is – when looking at employment contracts, real estate leases and financial issues -- to take a look at culture in the same way you look at other issues: Assign someone to look at culture at the companies, to understand where the differences are, so you can identify where you may potentially have problems.

Q: For culture,what elements do you look at?

A: It's particularly difficult for you to understand it in due diligence because you have limited access to information. You can't go out to survey 200 employees and get their feelings about the culture, so you have to work with information you do have in due diligence to try drawing some conclusions. 

Does the company have a mission statement? Does it have a statement on values? From an organizational chart which shows you how the company is structured, you can understand how the company is operated.

So for example, one thing we always look at are the senior HR officers within a company. Are they individuals who report directly to the president, or who report to someone else who reports to someone else? Because it indicates the priority and the focus of the HR function within that company.

So there are ways in due diligence to make some observations about the cultural issues, but often you have to wait until you sign the agreement. Then you could do more study, more surveys and more research.

The other aspect to cultural issues is -- unlike an employment contract or a benefit arrangement where you could change a clause in the next 60 days -- when you talk about changing culture, it takes several years or even longer to really change it.

So we encourage companies not to think about how they are going to change the culture, because it takes a long time and it's so difficult to do, but rather understand the culture -- what the differences are and what problems (might result).

One thing we find is that some cultural differences don't really impact their business. So it's not just the differences, but are the differences going to limit your ability to grow successfully, and are there other ways you could cope with these differences.

Q: Do you think Lenovo did a good job？

A: I think to a large extent they have. They are one of the first Chinese companies to make a very significant global acquisition. My understanding is their business continues to run well.

Like any business, the market always continues to change, so Lenovo will need to continue to change as well because their competitors are changing. HP is acquiring EDS, Dell has gone through a number of changes ... so Lenovo will need to continue to change…. If you look at what the acquisition means to Lenovo, it really makes them very much a global player and a strong global competitor.

I think, given the fact they are one of the very first, they have done a pretty good job in terms of what is happening now. I am sure there were things they wish they had done differently, but in every acquisition, even in companies that have done a lot of acquisitions, they still continue to learn, they still continue to try to do things differently. But I think it is a very strong acquisition.

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