Case Study: Can This Merger Be Saved?

Contents

I. LIST OF TABLES

II. LIST OF FIGURES

1. Introduction

2. Case Study Analysis
2.1. Profile: Synergon Capital
2.2. Profile: Beauchamp, Becker & Company
2.3. Articulated Objectives
2.4. Course of Events
2.5. Key Issues Identified
2.5.1. Issue 1: Unchanged Integration Strategy
2.5.2. Issue 2: Ignorance of Differences in Organizational Culture
2.5.3. Issue 3: Failure to Communicate
2.5.4. Issue 4: Absence of Change Management
2.5.5. Issue 5: Lack of a Vision
2.6. Diagnosis of the Problem

3. Recommended Actions
3.1. Immediate Actions
3.1.1. Appoint a Change Leader
3.1.2. Stop Integration Activities & Re-Enable Beauchamp
3.2. Short-term Measures
3.2.1. Perform Cultural Due Diligence
3.2.2. Develop a Vision
3.2.3. Adjust the Integration Strategy

4. Conclusion and Further Recommendations

List of References

Abstract

The case study “Can This Merger Be Saved?” describes the troubled acquisition of British financial service provider Beauchamp, Becker & Company (hereafter also referred to as Beauchamp) by the U.S. financial industry giant Synergon Capital (hereafter also referred to as Synergon). Starting point for the analysis of the case study conducted in this paper is Beauchamp’s managing director Julian Mansfield’s threat to leave the company. Mansfield, who had been identified as key success factor for the continued high operational performance of the newly acquired company within the Synergon Capital group, is alienated and offended by the way the integration process is handled by Synergon. His counterpart at Synergon, Nick Cunningham, needs to figure out how to manage the integration of the two companies in a way that keeps vital resources on board and preserves the value-defining characteristics of Beauchamp in the process of integration. This paper analyses the main issues and underlying problems that jeopardize the successful integration and provides alternatives that might help the protagonist of the case study turn the situation around.

I. LIST OF TABLES

Table 1: Wording and symbols indicating Synergon’s organizational culture

II. LIST OF FIGURES

Figure 1: Congruence Model

Figure 2: Congruence in merging two entities

1. Introduction

The U.S. financial industry giant Synergon Capital recently acquired the British financial service provider Beauchamp, Becker & Company and is in the process of integrating the newly acquired subsidiary into its organization. Only a short time into the integration the first tensions arise between Beauchamp and its new owner Synergon. Julian Mansfield, the managing director of Beauchamp, is dissatisfied with the way the integration is taking place and threatens to leave the company. For Nick Cunningham, a Synergon employee assigned to help Beauchamp focus on growth, Mansfield’s threat poses a major risk as not only is Mansfield seen as a key success factor for the integration, keeping Mansfield on board is also one of the three tasks Nick Cunningham had been assigned by his boss J.J. d’Amato. He states that “If Mansfield walks, you walk out right behind him” (Cliffe, 1999, p. 2)

This paper will take a closer look at the circumstances and conditions of the acquisition and identify the main issues that jeopardize this particular integration. Based on the issues identified in the first part of this case study analysis, solution alternatives and recommendations will be developed that can aid Nick Cunningham, the protagonist of the case study, in turning the failing integration around.

2. Case Study Analysis

From the start, the acquisition of Beauchamp is not regarded as being in line with Synergon’s strategy as becomes obvious from Nick Cunningham’s comments on the acquisition. Contrary to Synergon’s usual target profile Beauchamp is not “a dog that no one wants, run by amateurs.” (Cliffe, 1999, p. 1). Cunningham furthermore analyses that “our cultures are completely different. We don’t play the same game.” (Cliffe, 1999, p. 1).

These statements reveal that this acquisition differs from previous ones conducted at Synergon and that on multiple levels Beauchamp and Synergon are two very different companies. To understand just how different the companies really are, a deeper look at each company seems appropriate. After looking at Synergon Capital and Beauchamp, Becker & Company the objectives, which the companies pursue in the deal will be elaborated. This is then contrasted by a review of the course of events during the integration. The analysis will conclude with an identification of the major issues that impediment its success.

2.1. Profile: Synergon Capital

U.S.-based Synergon Capital is a progressive and highly growth-oriented financial service provider that is constantly seeking to increase its market share. Synergon satisfies its hunger for growth by acquiring companies with “established market positions and poor management” (Cliffe, 1999, p. 1). Applying its standard approach to integrating a new acquisition, Synergon quickly transfers back office work to its own locations, fires most of management in the process and hands over operational responsibility to one of their own (Cliffe, 1999). Newly acquired companies are essentially assimilated as opposed to actually integrated.

The organizational culture at Synergon can be characterized as rather virile, rough and competitive. This is indicated by the tone in which superiors address their subordinates, the use of aggressive rhetoric, martial symbols, and military-style organizational structures. Table 1: Wording and symbols indicating Synergon’s organizational culture provides examples from the case study that support this thesis.

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Table 1: Wording and symbols indicating Synergon’s organizational culture

The organizational culture also appears to be very much in line with the way Synergon performs acquisitions and with the displayed understanding of integration where growth is the primary target and “soft stuff” (Cliffe, 1999, p. 1) is not given much consideration.

As would be expected of a company characterized by a fast paced and short term, aggressive growth strategy with the above outlined organizational culture, the staff turnover rate at Synergon is fairly high at an average of 21% and managers stay a mere average of six years with the company (Cliffe, 1999).

2.2. Profile: Beauchamp, Becker & Company

British Beauchamp, Becker & Company is described as a traditional and stable company with a great history and strong profits (Cliffe, 1999). Its customers are wealthy individuals that are exceptionally loyal to the company. Beauchamp focusses successfully on long-lasting customer-relationships. Nick Cunningham states in this regard about Beauchamp: “They know more about their customers than we ever will.” (Cliffe, 1999, p. 1).

The organizational culture at Beauchamp is not described as bluntly as for Synergon’s, however, the details given on the company and its leadership provide some insight into how the working environment and atmosphere at the company might feel like.

Its “smart, sophisticated, and polished” (Cliffe, 1999, p. 2) managing director Julian Mansfield is said to preside over Beauchamp “like an old-fashioned patriarch” (Cliffe, 1999, p. 3). Mansfield, who is also known for his good character and business sense, is said to embody the corporate identity of the company. Associates at Beauchamp rotate between jobs to gather experience in various parts of the company, hereby developing an understanding of how the company works as a whole. As a benefit to its employees, the company maintains its own cafeteria, which provides employees with free meals. Moreover, there is a bonus plan in place that allows all employees to profit from high company performance to some extent.

The management team of Beauchamp, whose member’s average experience with the company is 21 years, has been working together for over a decade. Not surprisingly, the staff turnover rate is likewise at a low 4% (Cliffe, 1999).

2.3. Articulated Objectives

According to the case study, Synergon’s reasoning behind the acquisition of Beauchamp is that the deal would help Synergon get a foothold in Europe, which Synergon evidently does not have now but intends to establish. Furthermore, Synergon is buying Beauchamp for their valuable customer base of wealthy individuals, which Synergon intends to tab into (Cliffe, 1999).

Beauchamp on the other hand intends to grow and hopes to obtain the necessary funds to do so from the deal with Synergon. Additionally Beauchamp expects to build expertise in new areas of business that Synergon Capital is already active in (Cliffe, 1999).

Due to the prominent position that Julian Mansfield occupies within Beauchamp, Nick Cunningham identifies early on that keeping Mansfield in the company will be crucial to preserving the value proposition of the newly acquired company and to keeping its valuable customers happy. To this end, the Beauchamp acquisition is not supposed to be conducted in the same way other acquisitions at Synergon have been in the past. J.J. d’Amato states in this regard: “We won’t force them to change that much. … We will leave Beauchamp alone. It’s a great cross-selling opportunity for us. … Nick will help get them focused on growth.” (Cliffe, 1999).

J.J. d’Amato details the latter statement after the acquisition is approved by the board. Specifically, Nick Cunningham’s tasks in focusing Beauchamp on growth are:

1) Increase Beauchamp’s income in the first year by 20% and double it within three years (Cliffe, 1999)
2) Avoid negative publicity (Cliffe, 1999)
3) Obtain access to Beauchamp’s big customers via Julian Mansfield (Cliffe, 1999)

Though the targets set by J.J. d’Amato seem ambitious, it appears to be fair to conclude at this point that the objectives pursued by both companies and the intentions expressed for the integration are reasonable and compatible. On paper, the acquisition of Beauchamp by Synergon is indeed a “marriage made in heaven” (Cliffe, 1999, p. 2).

2.4. Course of Events

Although stated differently instead of leaving Beauchamp alone and helping the company orientate itself towards growth, Synergon applies their usual integration processes and starts shaping Beauchamp after their own. Shortly after the deal is agreed, Synergon replaces the generous bonus plan in place at Beauchamp that allows all employees to partake in the company’s success, by the bonus plan from Synergon, which reduces the premium for most Beauchamp employees. The cafeteria that provided Beauchamp employees with free lunch is shut down and its employees are let go. For cost saving purposes, procurement and travel management are taken over by Synergon; however, this has the adverse effect. Approval workflows that reduce the autonomy of Beauchamp employees when granting loans to customers are imposed by Synergon. Because this increases the lead-time to grant loans, this measure triggers the first ever customer complaint at Beauchamp. Moreover, Beauchamp employees are inundated with reports, forecasts and forms that have to be reported back to Synergon regularly. The rather rough tone of communication, which accompanies the multitude of requests from Synergon, further exacerbates the situation.

None of these measures had been communicated in advance and Beauchamp had no say in any of them. Understandably, Julian Mansfield feels misled by the original statement that Beauchamp will be left alone and is frustrated to the extent that he ultimately threatens to leave the company.

2.5. Key Issues Identified

Based on the profile of the two companies, the expressed objectives and the actions that ultimately are taken, several issues can be identified that lead to the current crisis of the acquisition. Not surprisingly, the issues identified below are interdependent and multifaceted. Due to the brevity of this paper only the most central and grave problems will be addressed here.

2.5.1. Issue 1: Unchanged Integration Strategy

The first issue that can be identified from the above is that although Beauchamp does not fit the usual acquisition target profile of Synergon, the same integration approach is applied without tailoring the approach to the specifics of this particular acquisition. With the integration process at Synergon being the way it is - which is in essence an assimilation of the acquired company instead of an actual integration effort - this strategy is doomed to fail.

Nick Cunningham had sensed this discrepancy early on and had raised this issue several times to his superior J.J. d’Amato who chose to ignore it. Paradoxically, J.J. d’Amato claimed to apply a different approach with Beauchamp when pitching the acquisition of Beauchamp to the board at Synergon. He stated that Beauchamp would be left alone (Cliffe, 1999). However, when the board accepted the deal none of that played a role any longer and the integration machinery took over as per usual.

2.5.2. Issue 2: Ignorance of Differences in Organizational Culture

Secondly, the organizational cultures of Beauchamp and Synergon obviously differ significantly and seem to be largely incompatible. The traditional Beauchamp reigned with thoughtfulness and integrity by Julian Mansfield does culturally not seem to be a good fit for the highly dynamic and tough acting Synergon. However, this overt and inherent observation is not considered in the slightest and is not reflected in the integration process.

Despite the fact that this assessment was addressed by Nick Cunningham as well, this too is ignored by his superior and everyone else involved. Instead of applying restraint or caution, the Synergon employees communicate with Beauchamp employees in the same rough manner as they are used to from their own organization. Thus, Synergon’s organizational culture is practically forced upon Beauchamp.

2.5.3. Issue 3: Failure to Communicate

Thirdly, the whole acquisition suffers from a lack of effective communication. There is no indication that any communication about the integration process had taken place between Synergon and Beauchamp. Although keeping Julian Mansfield in the company has been identified as top priority for the success of the integration, not even he was informed about what was going to happen. When the Synergon integration machinery took over, Beauchamp’s employees and management were surprised of what was going on. Had management at Beauchamp been involved or even informed they may have been able to soften the impact of some of the measures and thus contain the negative side effects on employee morale. Omitting communication ultimately leads to dissatisfied employees and the alienation of Julian Mansfield.

Arguably the practice of non-communicating the steps of the integration process may have been good practice in past takeovers and be part of the defining features of Synergon’s integration strategy. However, the Beauchamp acquisition being different and pursuing different objectives, this method of non-communication should have been revised.

2.5.4. Issue 4: Absence of Change Management

As a fourth issue it can be noted, that the integration lacks any form of overall change management or leadership. Nor is there any indication of a guiding coalition that has been set up. The integration can thus be considered completely unmanaged. Presumably, this too is owing to the fact that Synergon never really needed change management considering its usual approach of replacing management, back office staff, and existing processes and structures. Evidently, when a company is stripped of everything but “file drawers and contracts” (Cliffe, 1999, p. 2), there is not much change to be managed. Again, it should be emphasized that the Beauchamp acquisition is different and poses an endeavor for Synergon that it had previously not undertaken.

2.5.5. Issue 5: Lack of a Vision

The issues identified above point at a fifth, even graver issue that underlies the whole acquisition: the lack of a vision for the combined company. There is no indication that either of the two companies had given much thought to a common vision, a future organizational architecture, or how the combined company should be managed.

In absence of a shared vision, there is no guidance for the employees of either company. Not having had any exchange about how a common future will look like, any actions taking place will default to the way things were done in the past. Furthermore, without of a common guiding vision employees will have difficulties making sense of the things happening around them. Uncertainty and instability might ensue and cause the company to lose good employees in the process.

2.6. Diagnosis of the Problem

The integration of Beauchamp, Becker & Company into Synergon Capital is in a crisis caused primarily by internal incongruence that developed as a consequence of an unmanaged combination of two very different companies with divergent organizational cultures.

The congruence model, that this diagnosis is based on, was originally developed by Tushman & O'Reilly. It serves to asses how a company’s staff, tasks and workflows, formal organization, and culture contribute to or hinder the accomplishment of the strategy of an organization (Tushman & O'Reilly, 2002). The complex interrelations of these four organizational components are illustrated in Figure 1.

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Figure 1: Congruence Model

- adapted from Tushman & O’Reilly (2002)

Applying this model to the case study it can be stated that, before the acquisition both companies were showing a strong congruence between their respective strategies and their organizational set up resulting in high performance of the two organizations. With the acquisition, the two internally well set up entities are merged into one combined organization. In the process staff, tasks and workflows, formal organization, and culture of both companies are combined which causes friction and results in incongruence. This correlation is visualized in the following Figure 2.

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Figure 2: Congruence in merging two entities - adapted from Tushman & O’Reilly (2002)

As a result, at Beauchamp the takeover by Synergon hereby endangers the company’s continued performance as well as the achievement of the targets set for the protagonist Nick Cunningham.

Not realizing the need to realign strategy and set up of the emerging combined organization, Synergon furthermore neglects to apply change management principles, methods and tools in the integration. In doing so, Synergon commits several mistakes that John P. Kotter named as the main reasons for the failure of change projects, namely these are “Not Creating a Powerful Enough Guiding Coalition” (1995, p. 62) (àIssue 4), “Lacking a Vision” (1995, p. 63) (àIssue 5) and implicitly “Undercommunicating the Vision by a Factor of Ten” (1995, p. 63) (àIssue 3).

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