NIC-CBA Banks merger: Lessons for SMEs
The recent merger announcement by NIC bank and CBA bank is a good growth strategy case for SMEs. Lessons can be drawn from reasons for merger as well as how to successfully manage a merger process.
Stiff competition, globalization, changing customer taste and preference, changing technology and disruption are some of the reasons companies burn the proverbial mid night oil in order to stay afloat and in the instance of NIC and CBA same factors must have informed their action.
Faced with these factors companies have several options at their disposal depending with which factor is most pressing; for instance faced with changing customer taste and preference, an SME could rebrand or repackage its products or overhaul the entire company brand .
Similarly faced with globalization and competition an SME can diversify through entering into new market, diversify its value proposition or products or merge with another entity.
In this instance the focus is business growth through merger and or acquisition. The assumption behind mergers is that the two or more combined entities will capture a larger market, enjoy economies of scale as well as synergy.
It’s crucial that such merger deal capture synergy value associated with merging else such companies risk destroying both their brand values. Stakeholders such as shareholders, suppliers, customers and employees may be greatly affected by issues such as skyrocketing merger costs such as transaction, aggregation of supply chain network, management concentration on merger and not day to day activities among other reasons which could lead to brand value erosion.
In order to acquire the merger synergy, the two companies need to walk a tight rope in mastering the following post merger practices right after the conclusion of due diligence and approval by relevant bodies.
They both must be on the same page in terms of strategic direction of the merger deal. Questions of what is the end goal of the deal must the properly and thoroughly addressed. The combined entity must set up a steering committee to oversee the merger and ensuring there is a proper mix of staff fully and partly dedicated to ensuring the merger works on one hand and business continuity on the other.
The steering committee must set high yet achievable synergy targets for each business unit or profit centre, such as specific percentage cost savings and revenue gains. To set such targets, company can draw on internal and external experts and benchmark against other similar mergers globally.
The company must strive for a seamless business continuity from the get go. The steering committee must ensure the various organizational functions of finance, Procurement, Human resource, legal, marketing, corporate communication, Information Technology among others interact and chart their own integration goals in line with the overall synergy targets.
The combined entity must work fast to capture synergies associated with cost immediately after deal closure. Cost savings can come about by reducing reduction of fixed overheads such as rent, employees, IT infrastructure, supply chain integration among other cost that would lead to improved cash flow and profit position.
The new entity must carefully plan how they want to integrate the two corporate cultures to avoid major fallout with employees or goodwill erosion by employees. The merger steering committee must conduct a culture survey to find out significant corporate culture differences from which they can propose a shared corporate culture.
Some cultural considerations include; centralization or decentralized decision making, attitude towards risk among others. In instances where there are capacity gaps, training programs must be developed in those areas so as to ensure all employees practice the new culture.
Finally the new entity must decide how they are going to manage interdependencies. An example of interdependencies could be the decision on whether to combine the two brands to one or to continue with the separate brands is going to have major ripple effect on functions such as marketing, procurement, operations among other functions. The steering committee must thoroughly and carefully examine issues such as Key performance indicators, location and type IT infrastructure, supply chain management, Headquarters among other key issues.