At $19 billion, Facebook’s purchase of WhatsApp is monumental. And at $19 billion, why would Jan Koum, who just sold his mobile messaging platform, care about meshing with the Facebook culture?
While I don’t know him, I do know he does not have to care about meshing with the Facebook culture.
But, the people who do have to care are Facebook’s senior team. In the long run, they need WhatsApp to pay out for shareholders.
Facebook’s senior management seems to be very aware of the downside of integrating an acquisition into a company.
As a result, Facebook is going to keep it independent. Facebook CEO, Mark Zuckerberg posted, “WhatsApp will continue to operate independently within Facebook. The product roadmap will remain unchanged and the team is going to stay in Mountain View. Over the next few years, we’re going to work hard to help WhatsApp grow and connect the whole world.”
And in a post to its users, WhatsApp wrote: “Here’s what will change for you, our users: nothing.”
So, while WhatsApp owners may be blissfully rich, Facebook wants to assure that the company continues to operate independently in bliss.
WhatsApp will focus on growing users. The deal certainly shows that Facebook is very serious about mobile and is making moves to be a leading player. Part of that is to not get in the way of its acquisitions.
Case in point, when Facebook purchased Instagram in 2012, it also structured the deal for it to continue to run as an independent entity.
The truth is that Facebook believes the reports, that despite the intended or stated goals of M&As, research indicates that anywhere from 40 percent to 80 percent of M&As fail to meet stated expectations.
The main reason is not the deal on paper, but the culture clash of the people. Even when two cool tech companies merge – culture can destroy the intended consequences of a deal.
The reason is that mergers between two groups are complex. There are many moving parts.
For starters, one moving part is that M&As are viewed as major change events for the acquirer and target organizations. This fundamentally changes the perspective and role of leadership in M&As.
In this context, “collective leadership capability” becomes a driver of success because of leadership’s ability to enable the change…the same kind of change that an M&A creates.
In the case WhatsApp and Instagram, Facebook is keeping independence to increase the chances of success: less moving parts.
But, to further understand the complexity if companies do integrate, we recently researched an aggregation of 18,000 individual 360-degree leadership assessments to build a more complete picture of collective leadership capability in both acquirer and target organizations.
We specifically sought to answer three research questions:
1. What leadership areas for acquirer and target companies impact financial performance for M&As before the M&A is finalized?
2. What is the correlation between senior executive and mid-manager collective leadership capability in M&As?
3. What leadership competencies for acquirer and target companies impact financial performance for M&As before the M&A is finalized?
Within this data, four specific leadership areas and 14 leadership competencies provided a means to determine which are predictors of M&A success. The chart below shows the number of moving parts and complexity of bringing organizations together.
Korn Ferry’s M&A Success Factors
There were three major findings from the research.
First, some of the four leadership areas are predictors of M&A success.
- For acquirers, this included Thought, Results, and People.
- For targets, only the Thought leadership area was a predictor. Of note, while the collective leadership competencies within these leadership areas were predictors, in some cases like acquirers and the Thought leadership area, no one leadership competency was also a predictor.
Second, the level of leadership has a significant role in M&As.
While senior executives have a greater effect for acquirers, middle management has a greater effect within target company success.
Third, seven leadership competencies were predictors of M&A success for acquirers and four leadership competencies for targets.
- Only one leadership competency from the Thought and Results leadership areas were a predictor of M&A success (one for acquirers and one for targets).
- All People and Personal leadership competencies were predictors for acquirers, while three leadership competencies in People were predictors for targets. The importance of People and Personal leadership competencies in M&As is a strong indicator of M&As as a major change event. These types of leadership skills are critical to affect major change initiatives.
If companies in our study have the identified leadership profile, the expectation was that these companies financial performance over the two-year period after the completion of the M&A would be higher. This was the case. It suggests that in an M&A, if the numbers work, it is only the starting point for possible success. The people variable is always the wild card.
So, when you breakdown the complexity of the human component of M&As – it is clear that Facebook does really care about culture — and they thought long and hard about not messing with success.