Avoid Post-M&A Disasters: How to help employees navigate the shock of a merger or acquisition

This article summarizes the session shared at the Enterprise Agility World Conference on November 6th, 2022. Watch the video here!

In my last ten years of work, I have been privy to integration efforts of over 20 private-company acquisitions. Through these experiences, including the ones where I was a member of the acquired organization, I know about the potential pain of navigating the change that comes with M&A activity. This pain and my experiences have spurred my doctoral research at the University of Southern California, where I’m looking at the influence of adaptive leadership behaviors on voluntary attrition after a company has been acquired. In other words, I’m studying what leaders do to influence employees to leave after their company has been acquired.

In this article, I will give you a little sneak peek into my research and unpack three key theories and tips to help you navigate the shock of a merger or acquisition for your employees and yourself.

Nail the Basics

Mergers and Acquisitions (M&A) are corporate change events where firm ownership is altered by combining two organizations to create a new firm through a merger or by absorbing an organization into an existing firm as an acquisition. These changes are significant across people, processes and systems as they require employee identities to shift, processes to change, and relationships to be altered. Unfortunately, across industries, 70% to 90% of M&A endeavors fail to meet their strategic and operational goals (i.e., market consolidation, disabling a competitor, acquisition of technology, an increase of firm value, etc.), mainly due to human factors, including high employee turnover.

Mergers and acquisitions are becoming increasingly visible in the news, and while you might think that with an economic downturn, there would be a decrease in M&A, it is quite the opposite. Last year alone, there were over two thousand acquisitions of software companies. I expect this number to increase over time as markets become increasingly uncertain.

M&A activity is all around us. Are you aware of my friend Mickey Mouse? The Walt Disney Company has been on a buying spree recently, but their acquisition history is impressively long, with notable acquisitions including The Jim Henson Company in 2004 (Muppets), Pixar in 2006 (Toy Story+), Marvel Entertainment in 2009 (Iron Man, Captain America+), and Lucasfilm in 2012 (Star Wars). These companies were independent before The Walt Disney Company acquired them, but now, all the characters from each historical company can cohabitate alongside one another in Disneyland, in Disney Stores, on Disney+ and in your minds, it’s all Disney. That’s the beauty of successful M&A. If done effectively, it’s all one moderately happy, mostly functional organization in the end.

Unfortunately, however, while these acquisitions may look successful from the outside or from the consumer’s point of view, I can assure you that they were not without significant shock, feelings of loss, broken trust, and chaos within each acquired organization as individuals and teams worked to identify and define their new normal as part of the Walt Disney Company.

In my research and experience leading M&A integration, I have learned that being acquired as an employee and an organization is highly complex and painful. Working at a company that is acquired is a significant shock for employees, yet we (as leaders) often spend most of our time focusing on “the organization.” This is wrong.

Experiencing a merger or acquisition is a shock for employees. Therefore, to successfully manage an M&A integration, you must acknowledge the changing needs of employees to achieve the organization’s goals.

In this article, I will share a few different ways to look at this problem and a few different lenses to view it, even from a few different roles, so we can uncover what is typically missed by M&A leaders and leaders within the acquiring or acquired organizations.

Trying on Lenses

I’d like you to work with me here and take a moment to visualize a potential reality. Think about your work world; it is steady, you know how to do your job, and you know what to expect of your colleagues. Your routine is set, and you get to work in your own way. All is well.

Think about and visualize 6-months into the future. What is your team doing? What goals have you accomplished? What’s coming up next?

Next, think about your closest, most aggressive competitor. Who are they? What do you know about their business? Why don’t you work for them?

Now, here’s where the surprise kicks in. You just got a last-minute meeting invite from your CEO for an all-company meeting. The rumor mill goes wild. You hear from a trusted work bestie that your closest competitor is acquiring your company. There is overlap in products and services, and you fear everything you know (and likely dislike) about your closest competitor will soon become your reality. You probably don’t want to believe the rumor is true. But it is.

As you process this, say it aloud or write down how you feel about this news. What thoughts do you have? Don’t analyze your reaction; just document what it is. We will use this event and your response to try different lenses or ways to view the challenge and adapt to it as we move forward. Each theory is a different way to view the problem and comes with new recommendations. Let’s jump in.

Human Reactions to Change: The Satir Change Model

When I work with groups working to navigate change associated with M&A, I often hear that the shock of M&A, such as being acquired by your closest competitor, would be scary, a significant interruption, and may negatively impact opportunity for you and your team. Unfortunately, that is an absolutely normal response.

Humans react to change in a rather predictive way, regardless of the change type. Even net positive change is often viewed negatively, especially at the outset. My favorite model of change comes from Virginia Satir, one of the greatest family therapists of our time. I prefer this change model because this isn’t about how the organization adapts or how systems are integrated; this is about people. People will make the difference between success or failure in your acquisition integration. We must acknowledge each individual person’s process in navigating the change.

The Satir Model of change considers an individual’s performance, which can also be considered an individual’s response to a change over time and describes the process each person will go through to adapt or accept a change. Those familiar with the Kubler-Ross grief cycle will note this is somewhat similar to that cycle—you are correct.

In the Satir Change Model, a foreign element is introduced; this is the change announcement. Next, a period of resistance and chaos begins. Performance drops, and attitudes may become negative. When fears are addressed, a transforming idea can be introduced to push individuals into the integration phase when they decide to “get on board” and adapt to find their new normal. The phrase “things get better with time” points to this cycle, and in my practice, I’ve seen this be true repeatedly.

Let’s jump back into your story. When you go into that all-company meeting, leaders describing the change will likely be talking about it positively. A leader’s positive narrative at the outset is typically due to leaders having more time to process the change for themselves; they are further along in the change cycle. 

Just hearing about the change from the official sources for the first time, you are not at a point where change appears positive. You’ll likely reject the new information the first time, as most humans do. You need time to hear the repeated message, ask questions, and think about how the change might impact you personally, professionally and even financially.

Leaders who fail to acknowledge the time needed to process a change negatively impact the opportunity for their employees and teams to get on-board and navigate the change effectively. Leaders love to come out the gate with new news saying, “this is going to be so great!” but they completely miss the fact that they have had a longer time to think about it and process the change before announcing it to their employees.

Leaders, this is your sign to give your people time to process what’s changing and support them in this process. Don’t tell them how to feel. Instead, you can provide more information, repeat yourself gracefully and help your people begin to understand what is changing and that the change is real. If you can do this effectively, you give your people a greater opportunity to prepare for a more successful journey through the change model to the new status quo. Support them along the way; that is your primary role in leading through significant change such as an acquisition. 

Be there for your people. Let them ask questions and try not to undermine or show negative attitudes towards the change, because your attitude is contagious. Remember, employees chose to work at a company that is no longer; they did not actively choose to be acquired (in most cases). They likely had no direct influence or say in the acquisition, yet it impacts them very personally.

If you want your people to navigate the curve and stick together, lead the team with grace, empathy, and support. Be human to humans and try not to jump or run into the new status quo too quickly. Instead, give your folks time and space to process in their own way.

In-Group/Out-Group Dynamics: Social Identity Theory

Think again about the scenario of your organization being acquired by your closest competitor. Ideate and consider writing out a few of the questions that you have about how the companies will come together. These questions will typically come up in the chaos stage of the change model, before the transforming idea, and sometimes into the integration stage, where performance and attitudes finally start to improve.

In the role of a leader, as you progress through repeating yourself gracefully, answering questions and helping your people process the change, you are likely to hear the words “us” and “them” emerge. This is very normal, and it may not be a problem in the beginning. However, as you progress through time and into integration, you will want to consider how the “us” and “them” can avoid turning into “us” vs. “them.”

Us vs. them is a crucial mindset to be aware of through acquisition integration as it indicates that employees’ social identity is being challenged or that a portion of an individual’s self-concept derived from perceived membership in a relevant social group is being threatened.

In other words, employees may be resistant to changing their answer to “what company do you work for” as they may not feel ready to make the change or be included in the new group, similar to how they were socially included in the historical organization, especially if the acquiring organization was, in fact, a close, aggressive competitor.   

When considering “us vs. them,” look to Social Identity Theory, first introduced by social psychologists Henri Tajfel and John Turner in 1979. Tajfel and Turner suggested that groups to which people belong are an important source of pride and self-esteem. Groups give people a sense of social identity: a sense of belonging to the social world. This idea naturally divides companies attempting to integrate into “us” and “them.”

Often, a group that identifies as “us” will find self-esteem and pride in seeing one’s own group (us) as better than another group (them). This undermines the spirit and effort of creating an integrated organization, or “we.”

To lead through this in a scenario where two companies are to integrate fully, to become one team, work to get your teams, be it from the acquiring or acquired organization together quickly and align them together as one team with shared goals. Get from “us” and “them” to “we.” 

“We” is an indicator of progress through the change model and will greatly aid teams in the integration stage as they approach the new status quo. Another way to help folks through this is to acknowledge the end of the historical “us.” Honor the ending and celebrate the new beginning, the “we.” Do you have extra swag from the former “us”? Give it away to employees to mark the retirement of the brand and help folks process.

Also, Pair people from both the acquiring and acquired organizations to work together to deliver outcomes as a team as early as you can to signal the team will be operating as one. Finally, celebrate the wins of integrated teams loudly and show how much greater strength and opportunity is in the “we” environment.

M&A integration is not about “us” or “them” winning; it’s about “we” winning as an integrated team, executing against a combined and aligned vision for the future.

Strengthen Retention and Capability: Self-Efficacy Theory

On the road to the integration of acquired organizations and progress through the change model, one of the key fears I hear from employees of acquired organizations in the chaos phase is that they don’t know how to work in the newly combined organization or that they are not feeling motivated to tackle new challenges in the changing environment. They feel their capability and opportunity to do good work is negatively impacted by the change because the rules have been altered, what success looks like has changed, and they don’t know if they are meeting the mark of “good enough.”

The feeling of loss of capability is especially prevalent for people that consider themselves “high-potential” or “high achievement.” The people who go above and beyond consistently to make the big win have their confidence in being able to win in the future undermined by the changing organizational landscape.

In a newly changed environment, people need to rebuild their sense of self-efficacy and their beliefs in one’s capabilities to mobilize the motivation, cognitive resources, and courses of action required to meet given situational demands. In other words, people don’t just need confidence in their ability to try; they need self-efficacy, belief in their capacity to motivate or control their behaviors and solve the problem at hand. One’s sense of self-efficacy provides the foundation for motivation, well-being, and personal accomplishment. Thankfully, there are a few recommended methods to build and increase self-efficacy.

Self-Efficacy Theory

Self-efficacy theory was first introduced by Canadian-American psychologist and Stanford Professor Albert Bandura in 1977, where he theorized that people’s belief in their efficacy is directly linked with their motivation for a task. Your job as a leader working through integrating organizations is to encourage motivation and self-efficacy in each individual person.

If done well, the payoff will likely include employees who are not only engaged, but who are motivated to jump in and deliver outstanding results in the newly combined organization, regardless of their previous role.

Improving Self-Efficacy

There are four primary ways to encourage the development of self-efficacy in individuals: Mastery Experience, Vicarious Experience, Social Persuasion and Physiological Feedback. We’ll unpack each one and share examples of what you can do as a leader to encourage the development of self-efficacy in your people.

Mastery Experience – The most influential source of self-efficacy is the result of one’s previous performance. When an individual can reflect on an experience where they took on a new challenge and were successful, self-efficacy rises.

Bandura (1997) noted that “Mastery experiences are the most influential source of efficacy information because they provide the most authentic evidence of whether one can muster whatever it takes to succeed. Success builds a robust belief in one’s efficacy. Failures undermine it, especially if failures occur before a sense of efficacy is firmly established.”

When working with people in a newly changed environment, look for opportunities for employees to practice delivering value in the new way and support them along the path to success. By encouraging the experience of being successful, employees will teach themselves they are capable of acquiring new skills and achieving performance in the new environment.

Vicarious Experience – The second most influential source of self-efficacy is through watching others, by having vicarious experiences provided by social models.

Bandura (1977) theorized that “Seeing people similar to oneself succeed by sustained effort raises observers’ beliefs that they too possess the capabilities to master comparable activities to succeed.”

Vicarious experience is observing someone else successfully completing a task. I know for me; this is very real. For example, when I was in fifth grade, I preferred to watch someone do something before I felt efficacious enough to do it myself. Just like watching your best friend jump off the high dive at the swimming pool before you want to do it yourself, watching others succeed and feeling like your ability is similar to theirs influences your feeling that you can succeed at a task.

WARNING! Vicarious experience can also be harmful, so leaders, be sure that people are supported through their mastery experiences because observers just might be using someone’s mastery experience as a vicarious experience.

Social Persuasion – The next opportunity for improving self-efficacy is through social persuasion.

You must encourage others that they can perform a task. This is social persuasion; you can develop self-efficacy in others by providing encouragement as they attempt a task. Social persuasion, of course, can also work negatively if folks are discouraging or disparaging about the ability to perform a task. Social persuasion works both for you and for others.

Consider the social persuasion of telling a young person, “You can do it!” as they round the final corner in a short-course race. They will hear your encouragement and might press harder to the finish. Conversely, you hopefully wouldn’t yell, “You can’t do it; you won’t finish!”; if you did, you might cause someone to give up.

Tip: Leaders, be mindful of your influence in social persuasion. Even behind closed doors and indirectly, verbalizing distrust in someone’s ability can significantly influence their motivation to press on and work to the finish.

Physiological Feedback – The final element of building self-efficacy is how people acknowledge and interpret physiological feedback. When preparing to execute a task, you might experience a sensation from your body. How you interpret these signals will impact your self-efficacy.

For example, suppose you get butterflies before your weekly 1:1 with your new manager. In that case, your body is indicating an emotion or feeling about those interactions that you might interpret as distrust in your self-efficacy in performing well in those conversations, which in turn, might negatively impact your performance. Instead, consider how it might go if you interpreted the sensation as positive, that you were excited to meet with your new leader and see what you can learn from them.

As Bandura (1977) states, “it is not the sheer intensity of emotional and physical reactions that is important but rather how they are perceived and interpreted.” People with a high sense of efficacy are likely to view physiological sensations as energizing facilitators of performance. In contrast, those riddled with self-doubts might regard these feelings as negative.

The way we interpret physiological feedback makes all the difference. For example, suppose you have butterflies before giving a talk at a conference. Instead of associating that feeling with nervousness, you might consider associating it with excitement and the process of getting ready to perform well.

Thus, individuals can improve their sense of self-efficacy by learning how to manage anxiety and enhance their mood when experiencing challenging situations.

Self-efficacy is both a cause and indicator of future performance as self-efficacy can mediate an individual’s choice and engagement in activities, effort and overall persistence. When integrating organizations after an acquisition, employees want to feel successful; they want to feel efficacious.

As a leader, you can directly influence any employee’s sense of self-efficacy through supporting direct experience, vicarious experience, social persuasion and coaching on interpreting physiological feedback. You can make a difference in how someone views themselves in the context of the new and changing environment.  

“People’s beliefs about their abilities have a profound effect on those abilities. Ability is not a fixed property; there is a huge variability in how you perform. People who have a sense of self-efficacy bounce back from failure; they approach things in terms of how to handle them rather than worrying about what can go wrong” (Bandura, 1997).

Bouncing back from failure is an incredible skill of highly efficacious individuals, especially in the context of M&A integration. Not everything goes right; sometimes things aren’t what you expected, and how you navigate those discoveries and subsequent changes determines how valuable you can be to the newly combined organization; how successful you can be in the changing environment.

Leveraging Theories for Productive Action

Navigating the shocks of mergers and acquisitions is tricky. No two acquisitions are exactly the same, but all share many commonalities, mainly in how people react to the change. Our human reaction to change is very predictable. Knowing and understanding the steps of the change cycle can greatly assist in helping yourself, peers and followers navigate through change associated with M&A.

By acknowledging the change model and not trying to move to the new status quo before wading through chaos, you can signal to your people that you know change is a process, it takes time, and you are there for them along the way. 

Keep an ear out for “us vs. them,” and actively coach teams to “we.” In my experience, you have just under 100-days to get your integration off and running with plans in-place and teams working together. After that 100-day mark, people seem to lose interest and resistance increases due to other competing priorities. Be planful but swift when integrating teams; get to “we”—one team with one goal.

One way you can help encourage “we” and improve self-efficacy is through training and skill building. Onboarding training for employees of newly-acquired organizations is not a nice-to-have; it is essential. Training provides an opportunity for employees to get to know the people, processes, systems and culture of the newly-combined organization. Training can also offer opportunities for employees to engage in mastery and vicarious experiences. This, along with your continued social persuasion and support will make it easier to sort through physiological feedback as each individual works to build their self-efficacy and find their opportunity for success in the newly-acquired organization. People want to feel capable and successful; helping to improve their self-efficacy does just that.

Finally, my bonus tip, when bringing on new people to an acquiring organization, think about the experience from the lens of the employee being acquired. Seemingly overnight, they have a new job, a new leader, and new top-level organizational goals. Honor this experience. Consider the culture and history of the acquired organization and be sure information about the acquiring organization is readily available, including how to ask for help.

Did you find this article insightful or helpful in your practice? Do you have ideas of how to improve this content? Drop me a note or add a comment to join the discussion.