Mergers are highly complex processes which can generate significant hesitancy amongst investors, employees, creditors, suppliers and other vested stakeholders. To allay fears and ensure success, two crucial elements – planning and communication – need to form the mainstay of every merger.

Three major challenges need to be addressed by companies when they decide to merge. These include overcoming corporate culture differences, dealing with legal and regulatory issues and conducting a successful integration effort. 

Whose culture is it?

When two companies merge, one of the major sticking points is how to combine two different cultures.

Here, the key management team needs to decide which culture will prevail or whether a new culture needs to be established and, if so, what the new culture will look like. Once this decision has been made, the prevailing or new vision and mission need to be refreshed and communicated to everyone in the organisation.

In addition, agreement needs to be reached on key elements such as branding of documentation, corporate language, office hours and dress code, amongst others. Policies and procedures need to be internally aligned and employees kept up to date through training and other communication channels.

Keeping abreast of legal and regulatory requirements

Companies need to compile a compliance checklist prior to the implementation of a merger. Depending on the size of the merger, they may also need to consider the Competition Act.

Sometimes companies may consider themselves small – even after a merger – but they may fall within the Competition Commission net, depending on the industry they operate in. In this respect they may need to comply with specific requirements such as instituting mandatory audit firm rotations.

Black Economic Empowerment (BEE) is another important consideration for companies on the brink of merging. The merger can result in a change to the overall BEE level of the new entity. If not dealt with properly, this will affect what business the organisation can conduct with government and large corporates going forward.

Notably, small businesses quality for certain tax exemptions. A merger may result in these exemptions falling away because the merged organisation is then above a particular threshold. It is important to calculate these potential tax changes prior to the merger.

The importance of the integration effort

Companies wishing to merge need to establish up-front what the merged entity will look like. This will inform what integration efforts will be required.

From a talent perspective, payroll and other human resources functions will need to be integrated and job levels aligned. This means remuneration of talent will require alignment, as will leave and other allowances. This often requires renegotiation and can be a painful and drawn out process if not handled properly. Here, communication is key in allaying fears and dealing with possible redundancies.

Importantly, these decisions need to be made long in advance of the merger. It is dangerous to deal with issues as and when they occur. This underlines the importance of planning. Only by conducting thorough planning can all risks be assessed and contingency plans drawn up.

Consider the following: Staff at Company 1 belong to a labour union and those at Company 2 don’t. Company 1 may have a smaller staff contingent and therefore its union may not represent the majority of employees post-merger. This can lead to strife and stall of the integration process.

Other important considerations include assets and other resources. Assets need to be carefully quantified – and decisions made about what must stay, what must go and what else will be needed.

Ultimately, planners must have a deep understanding of the two businesses and how to successfully combine their processes and operations. The planning committee should be made up of senior team members, who are fully committed to the process as well as to constant and clear communication.

Companies that can successfully overcome these challenges will be much better equipped to conclude a successful merger than those who shoot from the hip and leave important aspects to chance.