How to get a merger strategy right

Combining two businesses often results in many new complexities that did not exist before. PHOTO | SHUTTERSTOCK

By JAMES MUGO
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Summary

• Managing the expectations of the various stakeholders is a complex process that becomes even more complicated when you move across different jurisdictions.
• Mergers are a delicate process, which can fail to achieve their objectives if not managed right. Mergers call for bold leadership that is ready to make difficult decisions when called upon.

Mergers are increasingly becoming popular around the world as businesses seek to achieve growth amid rising competition and challenging business environment.

Mergers involve several key legal, human resources, tax, intellectual property and financial considerations.

Combining two businesses often results in many new complexities that did not exist before. The new entity could end up with a presence in several markets, a larger and more diverse customer base, a more complex product and service portfolio, and a high level of people and operational complexity.

Mergers typically involve a substantial amount of due diligence by both parties. Despite their growing popularity worldwide, according to Harvard Business Review, between 70 per cent and 90 per cent of mergers and acquisitions fail. In any merger, there are numerous challenges in integrating the two previous distinct businesses into one harmonious unit.

In any merger, there several key considerations you need to look into if you are to achieve a copacetic level of success in integrating the two organisations.

As we celebrate the first year of the merger between NIC and CBA, which resulted in NCBA Group PLC. Here are some of our key lessons that organisations looking to merge can apply.

The first consideration is to promote your core brand strengths. Bringing all customers to see one harmonised organisation is one of the key activities you will undertake during a merger. Immediately after a merger, customers will be keen to know what sets your company apart from competitors.

During the first few years of any merger, it is advisable to stick to the key intrinsic strengths that brought you together. In our case, we decided to focus on growing asset finance, SME, corporate and digital. These are the inherited endowments that resonate well with our customers. As the business grows and consumers become more familiar with your broader offerings, we will expand to new areas.

The second consideration is to quickly paint a picture of success to everyone. Here we are looking at all relevant stakeholders, including the boards of directors, customers, staff, shareholders, regulators and revenue authorities.

Managing the expectations of the various stakeholders is a complex process that becomes even more complicated when you move across different jurisdictions.

In our case, for example, when it came to regulators in Kenya, we had to seek approvals from Central bank of Kenya, the Treasury, Communications Authority of Kenya, Competition Authority of Kenya, Insurance Regulatory Authority and no objections from the regional bank regulators —Bank of Uganda, Bank of Tanzania and National Bank of Rwanda.

The sooner all your critical stakeholders are reassured of the goals and benefits of the merger, and you manage to meet all of their requirements, the easier the integration process becomes.

The third consideration is the culture of the organisation. Mergers are about equal partnerships based on equal footing. Among the first assignments when NCBA was created was to decide what our adopted culture would be.

It was evident in the beginning that trying to fuse the two cultures of NIC and CBA was not going to work out. While we had very similar values and work cultures, there were some nuances that meant we had to develop a new culture based on shared values of the brand. We then had to allow it to naturally grow. Although we are still in the early days, it has shown a lot of promise in getting all staff on board.

The fourth consideration is to have a strong governance framework that is led by a sub-committee of the board and management steering committee that is mandated to manage the entire merger process. A strong special team typically referred to as an integrated management office is imperative for a merger to succeed.

The fifth consideration is effective communication. Throughout the process, we emphasised the importance of listening to shareholders, customers, staff the various regulators and establishing a two-way communication channel.

We ensured we remained transparent to the stakeholders, especially shareholders, regulators, staff and customers. Remember, even when challenges do occur (as they often do in mergers), you must constantly engage your key stakeholders and reassure them of your commitment to the merger and to addressing any emerging service issues.

Mergers are a delicate process, which can fail to achieve their objectives if not managed right. Mergers call for bold leadership that is ready to make difficult decisions when called upon.

James Mugo, Group Director Strategy and Integration Management at NCBA Group Plc.