The Heart of the Deal

Geoff Westmore was a partner at PricewaterhouseCoopers for 17 years where he rose to become Head of Corporate Finance in the UK and then subsequently, Global Head of M&A. Over the years, he was involved in over 250 completed deals covering private equity investments, corporate transactions, and restructurings.

Over the past 15 years, Geoff has been a non-executive chairman and director of a wide variety of both public and private companies including Le Meridien Hotels, Four Seasons Health Care, Avery Weigh-Tronix, Brunner Mond, and Research Now. He is currently on the boards of Verve and Alliance Medical Group.

We met with Geoff to discuss the importance of culture in M&A.

HOW IMPORTANT WOULD YOU SAY CULTURE IS WHEN EVALUATING WHETHER TO DO A DEAL?

Culture is absolutely at the heart of things. What does the Corporate DNA of the business look like? Culturally, what sort of business is it? If a merger is really going to work, the Corporate DNA needs to be compatible, otherwise the people will be talking a different language.

There are many specific situations I can point to when deals were much better for our clients when the companies coming together could work with a management team with a similar kind of mindset.

As I moved into non-executive director roles later in my career, it became increasingly the most important thing in the success of a business, ie, having the right culture in the company. I like to use the analogy that the Chairman is a bit of an engineer turning the ratchets and cogs, trying to understand how those things have an effect across the organisation. One of the things I do is make a point to go downward and meet with people one level below the top management. Quickly you’ll understand how much they are bought into the direction of the company.

HOW DO YOU THINK CULTURE BECOMES INGRAINED IN A BUSINESS TO BEGIN WITH?

Culture is set by behaviour – how you behave with other people, how you are perceived to behave. I think people don’t often realise the immense impact their behaviours can have and the cascading effect it has on the organisation.

Leaders must lead by example. 

I know of a company where the chairman was using business expenses to cover some his personal spending. That sort of thing gets around a company very quickly. Actions (behaviours) speak louder than words.

HAVE YOU SEEN SITUATIONS WHERE COMPANY CULTURE HAS BEEN A FACTOR IN A POORLY PERFORMING BUSINESS?

Sometimes problems are compounded by numerous factors, but poor culture is usually an underlying part of this.

Going into companies, what I realised was that you get a pretty good feel early on for when something isn’t quite working – among the senior team or amongst some of their direct reports. You can see the need to take action. In those situations, there might be reasons that you wait, but I think many people after the fact, would always say they should have done that sooner.

In one situation, it became apparent the company was falling off a cliff. The executive chairman didn’t know, and the private equity team didn’t believe it.

We rapidly discovered that the heart of the issue was a culture problem. The problem was compounded by trading operations going down. The company had been a dominant player in the industry, but had grown up to be lazy and fell down on their customer service. It had become a culture where they didn’t look after their customers anymore. 

It turned out some people in the sales team hadn’t been to see a customer for five years and had only dealt with customers on the phone or online. And they had been marginally pricing contract renewals, but hadn’t realised that the cumulative effect was destroying the business.

It was a big turnaround situation. And changing culture can be quite challenging. You have to lead by example and show the benefits of the change.

ARE THERE WARNING FACTORS THEN WHEN LOOKING AT BUSINESSES OR DEAL OPPORTUNITIES?

In any market, the players tend to know which companies have good strong cultures and which have poor reputations for treating their customers and their people. You may not wish to pursue a deal with the latter type of business – it would be hard to build a platform of trust.

HOW IMPORTANT IS CULTURE AND COMMUNICATION POST MERGER?

One of the key strands of post merger integration is HR/Culture. If company A and company B merged, and they both have a procurement director, then of course what you end up with is two procurement directors, both of whom will start with the view that they don’t have a job.

We often talked about accelerated transition. Companies in these situations need to recognise there is uncertainty for people, and make hard decisions early on or they risk losing both people. You also want to create an environment of transparency and trust. Lots of people tend to think ‘don’t tell people the bad news’ to try and keep things upbeat. But the reality is, people usually know the bad news before management does, so you should always encourage that level of transparency. You have to be grown up about these things. Give a commitment and stick to your word. It goes a long way in building trust.

You can obviously tap into different types of communication: all company email, daily blogging, but the key thing is how information gets cascaded down the organisation. As a CEO, you can’t be everywhere all the time, so you need your team/direct reports to buy into the behaviours and culture you set so that cascades down and sets the example.

WHAT SORT OF THINGS DO YOU THINK A NEW LEADER NEEDS TO FOCUS ON?

I think leaders need to recognise their first moves – their first public actions – need to be ones that resonate with people. Personally I believe they need to focus on the soft “culture” things.

A new CEO needs to be consistent and transparent – and focus on two or three clear messages. And, select the right people around him/her that buy into his/her behaviours and the way you do things.

In my role as Chairman at one company, I would always say the same thing when speaking to employees: My ambition for this company is that wherever you go in the world and whoever you are (employee, customer, client), when you touch or have a brand experience with us, you should have the same experience from Sydney to San Francisco.

I suppose it was kind of a woolly meaningless thing to say, but as a Chairman, I felt it was sort of thing I should say – and to set the tone that those set of values were transplanted into every office.

WHAT WOULD YOU SUGGEST ARE THE TOP THREE THINGS TO KEEP IN MIND IN A POST MERGER SITUATION?

  1. Firstly, map the culture of the two organisations. Work out where the overlap is and what things are left as open issues. Make a plan to deal with the challenges head on.
  2. Second, figure out what the quick decisions are that you can take because you’ll be under a lot of pressure to be seen as decisive. Go for a number of quick wins – there will always be a lot of complex decisions, but don’t be afraid to park some issues until you know enough to take a measured decision.
  3. Third, try to find some words to encapsulate why you are doing this deal and the benefits for everyone – staff, shareholders, and customers. Find a brief and concise way to sum it up and keep reminding people of that.