x Abu Dhabi, UAEMonday 22 January 2018

From Aldar-Sorouh merger to marriage, any union needs a dose of realism

The Life: You would think a married couple starts with a blank slate. But, like a corporate merger, they bring their whole past with them, writes Tommy Weir.

The merger of Abu Dhabi developers Aldar and Sorouh is expected to go to a shareholders' vote today. Jaime Puebla / Delores Johnson / The National
The merger of Abu Dhabi developers Aldar and Sorouh is expected to go to a shareholders' vote today. Jaime Puebla / Delores Johnson / The National

Middle East bankers are hopeful that the upwards trend for mergers will continue this year building on 2012, which saw merger and acquisition activity double from 2011.

And this year started on a high with the Aldar-Sorouh union (which goes to a shareholders' vote today). But should everyone be as hopeful as the bankers?

When I think of a merger, the first image that comes to mind is that of an everyday merger - marriage. I realise that marriage is an oversimplification of what Aldar-Sorouh, or any corporate merger, will experience as it just involves two people who are supposedly leaving home to happily start a new life together.

It is often advised, "When you get married to someone, you marry their family too." This quote is apropos and it only takes a few months for the newlywed bliss to wear off and the discovery of difference to set in. You would think the couple starts with a blank slate, but, like a corporate merger, they bring their whole past with them.

And this is heightened when you spend time with the in-laws sans the rose-coloured glasses. Now imagine what it would be like if the two families literally and physically moved in together, as is the beginning point of a corporate merger.

As a child, one of my favourite TV shows, which we are watching on DVD with our kids, was The Brady Bunch. When Mike Brady with his three boys married Carol with her three girls, they made their blended family look so easy. This hoped-for idealism also creeps into the boardroom, but what is needed is a healthy dose of realism.

If you are not deterred by this analogy, let's try to understand why mergers don't work out the way that they looked on paper.

Mainly, because a merger is a physical transaction but analysed as a fiscal one. Typically, merger talks are driven from the balance sheet with limited discussions on the culture. Just listen to the terms used by the executives and investors: better access to capital markets, strong balance sheets, selection of leadership, and operational efficiencies.

Having spent a year and a half advising a "merger that never merged", as it was called four years after they signed the papers and started cohabitating, I discovered one critically overlooked element. The way they led. Although loosely related to the "culture" of the organisation, leadership is given very little press in merger talks or consideration in the decision, yet it is the variable for successfully creating one from two.

Just like the textbooks teach, they spent time bringing their systems together, streamlining processes, and reducing headcounts. They even redid their corporate identity thinking a new logo would aid the merging. But deep in each company was a specific and unaligned leadership style, which was left unaddressed for four years. This one overlooked area kept two companies alive under one single design.

To have a successful merger, companies need to make it a priority to agree what leadership style and behaviour the new entity will have. This is the first step in seeing the hoped for merger merge. A common leadership approach through the ranks of management will march the troops in the same direction to the same beat.

Tommy Weir is an authority on fast-growth and emerging-market leadership, an adviser and the author of The CEO Shift. He is the founder of the Emerging Markets Leadership Center