Not Really A Merger…


In May I wrote about the fact that the LIAT/Caribbean Star “merger’ was really turning out to be an acquisition.

Now, several months later, in December, all pretense of a merger has fallen away and the only public conversation is about the pending acquisition.

This, in an article from

BRIDGETOWN, Barbados, November 15, 2007 – The seven-year-old Caribbean Star will operate its final flight today, marking a takeover by competitor LIAT, in a buyout that Chairman, Jean Holder describes as “one of the most significant business deals in the history of the Caribbean”.

Late last month, the two carriers finalised and executed an agreement that facilitated the transfer of Caribbean Star’s assets to LIAT. That asset purchase agreement did not include the remaining five aircraft leased by Caribbean Star which are expected to be transferred to LIAT in a separate transaction expected to coincide with today’s closure of the carrier, owned by Antigua-based Texan billionaire Sir Allen Stanford.

Would it have been more truthful to just say this from the very beginning?

Surviving an Acquisition


In the news these past few weeks there have been some significant announcements related to acquisitions across the Caribbean region.

One major acquisition that was announced for the first time was that of Neal and Massy’s takeover of BS&T — Barbados’ biggest company.

Also in the news is the announcement that the principals of DB&G (which was acquired by Scotiabank) are leaving the company at the end of June.

Although the LIAT/Caribbean Star merger has not been in the news of late, the sale has still not been completed, although it has been scheduled to happen on June 15th.

The common factor between all three actions is that they were all announced as “mergers of equals.”

The result?

They are actually turning out to be acquisitions, and not mergers.

Lest anyone think that this is a strange occurrence, history is littered with examples of announced mergers that turned out to actually be acquisitions, including AOL-TimeWarner, Daimler-Chrysler, HewlettPackard/Compaq and Sports Authority/Gart.

The fact is that executives almost always start out using merger language in public, unless the takeover is hostile. In fact, they are undergoing acquisitions, especially with respect to the corporate cultures.

It is not too hard to tell who the cultural winner is — the executives of the company being acquired usually don’t last very long.

In a Framework article entitled “Merger of Equals? Equal Shmequal!” by Amie Devero, she argued that a merger is not possible, in cultural terms. (The article can be downloaded by sending email to Also, the recent April 2007 Harvard Business Review article entitled Human Due Diligence makes the point that companies often fail to recognize the “cultural acquirer” when undertaking these activities, to their detriment.

While these questions are certainly of issue to shareholders, it is the employees that bear the brunt of initial miscommunication.

They hear talk of “a merger of equals” “nothing will change,” “no layoffs, ” “business as usual” and “the same management will continue.” Given the public track record of mergers to date, they have every reason to be concerned.


When senior management insists that a merger of equals is underway it may be good for shareholders to hear and believe that the executives between the two companies are planning to harmoniously co-exist in some way. However, it is often a misleading statement for employees.

History shows that employees are much safer believing that a merger actually means that

  • each and every job function will be examined for possible overlaps, and that it is likely that at least some jobs will disappear
  • one company will be culturally dominant over the other
  • one set of executives will remain, while the other will depart
  • there will be major changes and new order will make itself known over time (after all, isn’t that the point of the exercise?)

This is not to say that these are bad outcomes — often they are the best things that can happen to the new, combined company. In the free market of management styles and approaches, let the best company and management team prevail.

However, the problem stems from the fact that most executives in both companies start out by mis-leading their people.

In the very way they announce the “merger” their own people can detect the lie.

It’s a little like a bad version of the Brady Bunch — each parent tell their children that a marriage is about to happen to join two families together, and… “by the way… in case you kids were wondering… nothing will change.”

Executives the world over leading acquisitions persist in painting an ultra-rosy picture of the future for their employees. Their inauthenticity is palpable.

It seems that often, they buy into their own “story,” an even in the colossal failures like AOL-TimeWarner and Daimler-Chrysler, they seem to be able to maintain a scary insistence that all is well, even when everyone in the real world knows that it is not.

What can executives do differently?

In a prior blog I wrote about what I called “High Tone Managers.” These managers focus on being relentlessly positive, to the point that their employees come to distrust everything they say because they are the ones saying it.

An executive leading an acquisition would do much better by being authentic and saying some version of the following, if true:

  • we are about to undergo a very difficult change
  • this is a friendly acquisition (if it is)
  • the odds are against us being successful
  • we think the risk is worth it
  • the culture that we intend to create will hopefully take the best of both companies
  • some jobs will be retrenched, but we are hoping that no people will be forced to leave the company
  • the reasons we are doing this is ….
  • it will take all of us working together to pull it off

The point here is that an acquisition is a shock, and that people will go through the changes they need to go through in order to adapt to it. It is not unlike the 5 phases of grief a survivor journeys through upon the death of a loved one, as defined by Elizabeth Kubler-Ross: Denial, Anger, Bargaining, Depression, Acceptance.

Employees need to be helped to go through these stages as quickly as possible, en masse. Their feelings at each point must be validated, acknowledged and given room to live, if even for an instant.

If executives do their job well, employees can be like soldiers rallying to a cause that is greater than themselves.

However, if the job is done poorly, as it usually is, the result is that employees feel like victims who need to protect themselves from something terrible, that their own parents are inflicting upon them for their own benefit.

In Caribbean companies, the employee mood doesn’t get much worse than this.

DB&G — not becoming db&g


I have been watching the takeover of DB&G by ScotiaBank and wondering what I would do if I were involved at any level.

If I were an employee, I would be concerned.

Although the previous and new owners have promised that there would be only a few changes, human behaviour would predict otherwise. The truth is that in acquisitions, everything changes, and very few things remain the same.

In fact, they MUST change, because that is the very purpose of the activity.

Scotiabank is not taking over DB&G for the fun of owning another institution. Instead, it wants to achieve particular business objectives and sees DB&G as the vehicle to accomplish them.

This is just about THE most fundamental change that can happen in business, as it is only a matter of time before Scotia’s business goals percolate down, affecting every single employee and every single customer. In the case of ScotiaBank and DB&G, Scotia cannot help but affect DB&G’s culture, morale and values. Their relative sizes guarantee an inordinate impact.

I imagine that the employees of DB&G have probably already developed the us vs. them language that I have seen in every M&A I have studied or witnessed.

Experience tells me that the best way to reduce DB&G, the brand to just “db&g,” a small part of a much larger bank, is to deny the reality that massive changes are coming, and to insist that everything is going to be the same. Unfortunately, the message that “things are going to be the same” is quickly followed by its evil twin: “things are fine.”

Most managers of M&A’s stick to these two scripts, even when their employees are telling them over and over again that they are wrong.

The effect of this inauthenticity is a separation between management and employees, and a loss of trust. Managers either lose touch with reality, or their people, and the predictable result is a drop in morale. Like George Bush and Dick Cheney on the Iraq War, they continue to assert that “there have been tremendous successes” and “failure is not an option” in the face of mountains of contrary, public evidence.

Managers find themselves in what they think is a catch-22: they try to “stay focused on the positive,” thinking that they cannot tell themselves and others the truth of what they think and feel, because it would destroy what little morale and trust they have left.

What they don’t appreciate is that employees want the very opposite. If the situation is dire, and bad things are likely to happen, then it is much better for everyone to acknowledge them together, rather than try to deny that they will ever happen. While some sad, fearful and even angry feelings may come out at first, it is more likely to help morale, productivity and the long-term future of the company if the truth were openly acknowledged at each step of the way.

The old DB&G has passed away. To prevent a broken, busted “db&g” from crawling out from the remains, the management of the new entity will need courage to talk about the changes that are likely, and predictable, and even those that are unwanted, and unpredictable.

This kind of courage actually gives employees faith that the leadership is fully in touch with reality.

What becomes possible is that an entirely new company could be created from the old. By freely allowing the old company to pass away (while mourning its death) the space might open up for a new DB&G — Subsidiary of ScotiaBank — to be created.

It is a natural progression of events that only managers can thwart by continuing to insist that what is dead is still, somehow, alive.

A Call for More Mergers and Acquisitions


Recently, Ambassador Richard Bernal made a call for more merger and acquisition (M&A) activity within the CARICOM region.

I hope no-one takes his advice too seriously.

Essentially, his argument reported in an article by Sir Ronald Saunders in, is that bigger is better. His concern was that the relatively small companies in the region are likely to be pulverized by the mega-multinationals, and he compares regional banks such as RBTT and FirstCaribbean Bank to Citibank as an example of institutions that we think are large, but in fact are quite small — their relative size being a weakness to be corrected.

I think Dr. Bernal’s premise is faulty to begin with, but I plan to address that in a future blog.

My concern is what will happen if companies across the region take his advice seriously.

Our in-house research cites numerous articles that show that some 60-80% of M&A’s produce no new value for their shareholders. That is, they fail.

Further primary research, available in the form of a white paper entitled Filling the Gap –The Caribbean Acquisition Report, shows that regional companies routinely underestimate the difficulty of the cultural differences, and have not figured out a way to create a single culture that is known by customers and the public as different or distinct.

Given these challenges, if shareholders were to heed his advice and were to begin calling for M&A’s to ward off external competition, my fear is that a dramatic loss of shareholder value would be the likely result. While it would make for good business for consulting firms like ours, which have a focus on interventions in M&A’s, we think that most would fail. After all, why should our efforts be more successful than the international averages? Many of these massive failures in shareholder value occurred to te mega companies such as TimeWarner and DaimlerChrysler of which Ambassador Bernal seems to be so fond.

While I share his concern, I think the prescription would end up killing the patient if the medicine were actually to be taken.

Disclaimer: I have not actually read his original paper, and am trusting that’s account (carried in several newspapers) is accurate.

CAP: Having a Powerful Dialogue


One of the results from the study that was not so surprising was data that we collected that showed that of the different elements of the acquisition communication plans, the most fruitful was the 2-way dialogue with employees. Interestingly, a similar international study done in mostly first world countries showed that this dialogue was much less important (some 25% less agreement as to its usefulness.)

In the absence of trusted information in these acquisitions, we observed that employees had a tremendous capacity to manufacture rumours that quickly became ““fact”” in the minds of a critical number of workers. The effectiveness of 2-way dialogues to correct rumours and address anxieties cannot be under-estimated, and at the same the risks are considerable.

The CEO of one of one firm’’s clients invited several small groups of employees to attend informal breakfasts, at which he invited them to “say anything”. People began to open up over time, until his irritation at their complaints began to grow, until one morning he retorted “Don’t you ever have anything good to say?” in response to one woman’s poignant observation. That was the final informal breakfast he conducted.

The risks of an authentic dialogue are considerable, which is why CEOs and other executives are notably reluctant to conduct them. They can get messy, and in an acquisition situation there is often considerable anxiety. This can get translated into feelings of anger and upset, and most CEO’’s are not well trained to deal with groups of people under these circumstances. This is especially true in acquisitions, when the acquiring executives are usually elated at their financial success in landing the deal, while the employees in the target company could not feel differently.

In the Caribbean, our observation has been that more often than not in public dialogues, CEOs devolve into a kind of parental role, while their employees display varying degrees of child-like behaviour. Dialogues can then become unproductive, looking more like monologues, as the CEO plays the role of someone who can remove the anxiety, when in fact he cannot –– it is inherent in the circumstances and in her people’’s reactions to it.

However, CEOs can be trained to conduct these dialogues effectively, through a combination of personal development (many have ego-issues that only become amplified in public settings) and video-based feedback.

At that point, the dialogues become transformational, and employees and CEOs become more connected than anyone thought possible. This can occur even when the CEO has no hard information to share, but is just able to face his/her employees concerns directly, listening carefully to what is being said and leaving his/her employees with an experience of “we’ve been heard.”

While these sessions can be conducted as Q&A’s, at some point a CEO can develop his skill to go further than just answer questions, which is the most basic level of public dialogue. He can actually take the role of leading difficult conversations that distinguish new principles that can be used to run the company at higher level. While there are very few CEOs that are this well trained, the few that I have worked with who are, consistently generate considerable loyalty and motivation by engaging openly and publicly with his/her employees.

In acquisitions, this skill is invaluable.

CAP: Planning for a Culture


While it is clear that the Human Resource (HR) function was not used to help plan the acquisitions included in the study, the question still remains: what are some of the things HR would do, if asked?

One key action would be to lead the development of an “Acquisition Philosophy” by the deal team.

There are many approaches that can be taken to undertaking an acquisition. Usually, the company being taken over is at least an average performer, although the majority of the companies included in the study were either failing or had already failed.

Obviously, the acquiring company is making the investment or purchase with the belief that their ownership will make the critical difference in the performance of the company. If this belief were not true, then it is reasonable to assume that the acquisition would not take place. After all, even a successful company would not allow its shares to be taken over in an acquisition unless there was some premium paid. Acquisitions involve significant costs and risks, and no stock-holder in his right mind would undertake either unless he were being duly compensated.

Turning a mere stock-purchase into a successful acquisition, however, has much more to do with the way in which the culture of the acquisition is integrated than the price paid. Our research showed that within the companies we researched, there were widely differing views on the Acquisition Philosophy to be used.

The Acquisition Philosophy has to do with a decision as to what precise combination of vision, mission, values and leadership to bring to the new company to turn it into a financial success in the mid to long term. The Philosophy created has everything to do with a sound understanding of the culture that prevails in the target company, and what interventions need to be created to make it successful.

Different scenarios call for very different Philosophies.

For example:

Example 1: A company being acquired was a combination of entities that had formerly competed, and had all failed financially. The parent company decided to create a culture in the acquired company that was a modified version of the culture found in the parent’s company. The new firm was formed around the same values, vision and mission of the parent, with small changes to account for differences in national culture. The leadership came from the parent company.

Example 2: A very successful company was taken over to help expand the market share of the acquiring company. The Philosophy created was to keep the company intact, and to keep the ownership in the background as much as possible, hoping that the success would continue.

Example 3: A company did not know to create an Acquisition Philosophy, and did not address the new culture of the company and how it would effect integration, except to mention it in passing comments. The company fought fires as they came up in the form of strikes, poor results and a rotating door of successive of leaders, none of whom were groomed for the job.

In our research done in 2001-2, the companies studied came closer to Example 3 than any other. The lack of a coherent Philosophy left them vulnerable and without adequate plans for the many surprises that came once the acquisitions were completed. A complete Acquisition Philosophy may have included the following decisions:

  • Does the acquired company require a new culture, replete with new values, vision and mission that is new and distinct?
  • Or, should the new culture just be the same as the parent company?
  • Is there an intention to have local executive leadership? What will be done to develop it?
  • If a culture change is required, how will it be affected?
  • Will the new company be run by a local board or by the parent company? What are the lines of accountability?
  • Will profits be repatriated to the parent company / country?
  • Is the parent company willing to learn from the acquired company and change its culture accordingly?
  • What will be done (or not done) to send a message to the employees that the change is a positive one, and what is the plan for motivating them and communicating in a way that reduces rumour-driven anxiety?
  • What will be done to help the people in the acquired company bring closure to their past successes and failures?

While the above list may appear formidable, our experience in assisting companies in transforming their cultures tells us that it is more important that the company’s executives come to agreement. It is a fact that there will be surprises and unforeseen events that the executive team will need to react to, and their Acquisition Philosophy can be used to guide them in making the joint decisions that are required.

Doing a perfect job on all the above points is much less important, and cannot be done by anyone other than the players accountable for the acquisition being a success.

A set of Acquisition Values can be developed in conjunction with the deal team, and the implementation team to guide the way in which they acquisition activities are executed. For example, at one company the directors steadfastly denied rumours that an acquisition was being considered.

A week later, they announced that there was in fact an acquisition underway. Instantly, everyone knew that they had lied, yet the fact was never addressed openly. Of course, it was talked about quietly for years after the fact and used as evidence as to why the company’s leadership could not be trusted. A serious commitment to an Acquisition Value such as “transparency” may have guided the team to a different set of behaviours, or to at least a dialogue to resolve the public discrepancy.

CAP: A Sense of Regret


One of the anomalies we found during the research was a sense of regret in each of the companies studied that the desired synergies did not transpire, in spite of their best attempts.

Synergies were seen as critically important. One of the ways in which this synergy would be measured would be through cost savings, and while there was an average of 83% agreement that cost savings were important, there was only 63% agreement that cost savings were actually accomplished. Most of those came from downsizing after the merger was complete, rather than any other method.

Meanwhile, the companies clearly saw the importance of the cultural fit, as shown by the following:

  • Cultural issues will affect synergies: 85% or 93% (the question was repeated)

Yet, the execution was done quite differently.

In response to the survey questions regarding the pre-deal phase, the following responses were received (with 0 indicating Disagree, and 100 representing Definitely Agree):

How much value did your company place on the following items in the pre-deal phase?

  • Identifying issues and preparing a rigorous plan for conducting the due diligence stage: 86%
  • Assessing the people. Organizational and cultural fit, and the related risks entailed in various combinations: 63%

They were unable to focus on the cultural aspects of due diligence. For different reasons, each of them found themselves working against the clock and focused solely on the short-term objective of being successful at the right price while raising the capital needed.

In some cases, the leadership of the new entity did not create an environment in which synergy was a priority. In some cases the new leadership of the company was more interested in establishing control over the new entity. In others, the leadership tried to protect what had been a winning formula when the difference in national and corporate culture turned out to significant. And in another, the new entity showed only a change in ownership, but no significant change in cost structure, company name, brand or leadership.

At the time of the study, there was no evidence of the kind of cooperation that results in real synergy either through shared talent, intellectual property, technical know-how or consolidation of important functions. There was a feeling expressed that not enough was understood or put in place with respect to the new national culture, corporate culture and kind of leadership required to accomplish this critical goal.

With respect to the issue of how the HR function could have been used, respondents were asked the following: To what degree was HR used to educate the “deal team” about potential people, organizational and cultural risks? The answer was a mere 40%. It seems that in retrospect, they either wish they had done so, or wished that they could have done so, by virtue of having the right expertise at their disposal.

CAP: A Difference in Perspective


As mentioned in a prior post, the CAP survey results showed that executives desired specific HR-related expertise that they did not believe they had in-house.

At the same time, our surveys demonstrated that there was a significant discrepancy between the perspectives of HR professionals versus other executives involved in the acquisitions under study. Specifically, this difference showed up in response to the question: “What is the right role for HR?”

In analysing the results, we noticed that there was a difference between the two groups, in answers to the following questions. (NB: A 100 point scale was used ranging from 100 / Agree to 0/Disagree. )

What is the right role for HR?

  • Strategic Business Partner: The HR response was 20 points higher (than that of non-HR executives)
  • Advisor to Executive Management: The HR response was virtually the same
  • HR Functional Expert and Implementer: The HR response was virtually the same
  • Project Manager and Thought Leader: The HR response was 13 points higher
  • Steward of the HR Functions: The HR response was 33 points lower
  • Employee Champion/Advisor: The HR response was 21 points lower

While executives seemed to want the higher-level expertise that most would associate as being HR-related, they had a different opinion. They clearly wanted and needed the skills, but they had a hard time seeing it emanating from the HR function.

The widespread nature of the observation (backed up in the interviews) indicates that this is a challenge for the profession in the region, and is not a problem related to a small set of individual practitioners. The truth is, our observation was that HR professionals were not equipped to answer the questions that CEO’s might ask when it comes to M&A’s, such as:

  • how does our company’s culture compare against those across the region?
  • what is the difference between acquiring similar companies in Trinidad vs. Guyana?
  • what are the best practices in integrating two different corporate cultures in the region?
  • who are the HR professionals you know in Belize that could be candidates for an acquisition in that country?
  • how deep is our talent pool and is it sufficient to provide the executive leadership we require to undertake one acquisition per year for the next 6 years?

These are sample questions, but they together comprise the essence of the kinds of questions that Caribbean CEO’s leading M&A’s have that, at present, most HR executives are not equipped to answer.

This is not to cast blame on those HR executives who were in the study. The data and the studies from which HR executives would glean answers to these questions just have not been done, the books have not been published, the blogs have not been written and the discussions have not been had.

Hopefully, CAP might make a useful contribution and a difference.

CAP: A Search for Expertise


The in-depth conversations that made up the bulk of the interviews conducted in the study were probably the richest part of the experience.

One of the strongest and most disturbing points was the need by executives to have particular distinct competencies at their disposal. Given that the study focused on distinguishing best practices in the implementation of acquisitions, the focus of these competencies are most likely to be found in the HR function.

One response stands out in connection with the following question:
What is the importance to accomplish M&A’’s….. in the area of:
Expertise with people/organization/culture integration? On a scale of 0 to 100, with 0 indicating disagreement, and 0 indicating full agreement, the score given was 94%.

When asked what the current level of capability was to accomplish M&A’s with their organization in the same area, the response fell to 62%.

Our research showed that while executives were looking for this particular expertise in “people/organization/culture integration”, they were steadfast in not looking to their current HR executives and managers for that support.

This dichotomy showed up all throughout the study: a refreshing sensitivity to cultural differences and the need to account for difference in corporate and national culture, coupled with a lack of faith in the HR expertise on staff to provide what they said was needed. We connected that with a variety of roots causes, all of which were mentioned in the interviews:

  • A historical bias to view HR as little more than “Personnel.” In this case the HR executive would have to take the lead in changing the popular perception.
  • An uneasiness with their HR department’s ability and competence to play a strategic role
  • The inability of the HR department to effectively get itself into the fast-moving waters of an acquisition process
  • A failure of the HR leader to clearly establish their knowledge and expertise in the area of M&A’s before the opportunity came up

A deeper investigation of the exact cause would be the subject of a different study.