Managers overseeing mergers of equally matched companies (MOEs) must walk a high-stakes tightrope. From forging a new culture to fairly splitting leadership roles to even deciding what name appears first, there are countless details to consider. Willis Towers Watson, a leading global advisory, brokerage, and solutions company, understands this well: the business has negotiated its way through two successful MOEs: the 2010 Towers Watson merger and the 2016 Willis Towers Watson merger.
General counsel for corporate transactions Neil Falis has helped, as part of a team of colleagues, to execute these mergers on the legal side. He first earned his expertise with them as a partner at what was then Kilpatrick Stockton—now Kilpatrick Townsend & Stockton—where he participated in MOE negotiations as an outside counsel. “When I was outside counsel, I was part of the process of deciding who leads, so I understand the end goal from doing that work,” he says.
Unlike in a standard M&A deal, Falis says, the two parties in an MOE have to truly merge and learn to operate as a cohesive whole. A lot of pitfalls can stall or derail the process, so it’s important to establish trust from the opening negotiations. Here, Falis shares some of the common challenges companies must deal with throughout the process—and how his companies have successfully maneuvered them.
1) Striking a Balance Between the Two Companies
In an MOE, both companies often have to compromise for the greater good of the combined entity. “Certain things can’t be equal, so it’s a real balancing act,” Falis says.
For instance, only one CEO will keep their title. Sometimes, the choice is clear, such as in the Towers Watson merger, which involved one private company, Towers Perrin, and one public, Watson Wyatt. In that case, the CEO of the public company remained at the helm, and the CEO of the private company became president and COO.
Both sides also must heavily weigh the demands they will make, because almost everything in an MOE ends up being reciprocal. “Both companies have to agree up front that you’re only going to ask for the same things and not something you wouldn’t give in return,” Falis says.
It’s about more than making everyone happy, too, for if things aren’t split up fairly, the MOE might fail to obtain approving votes from shareholders. “The more consideration you give to one company in the deal, the less likely it could be for the other shareholder group to approve—and vice versa,” Falis says.
2) Combining Two Distinctive Cultures
The combined company must take one of three paths regarding its culture: keep one of its old cultures intact, create a combined culture, or forge a new one. One mistake companies make is creating what Falis calls fiefdoms. “If you have general counsel from one company, you don’t want the people and culture from that company to dominate, or if you have a CFO from one company, you don’t want his legacy firm dominating,” he explains.
The type of merger at play can help guide the cultural approach. If it’s a merger of scale, where both companies do the same work—such as the Towers Watson merger—the cultures will likely have a lot of overlap. However, with mergers of scope, where companies are expanding their services or capabilities—such as the Willis Towers Watson merger—the solution is often to foster an entirely new culture.
Facilitating shared experiences among those on the leadership team can help inspire the trust necessary for a combined business to move ahead successfully. After the Willis Towers Watson merger, for instance, CEO John Haley hosted a leadership meeting in London. “We talked about substantive issues, but the majority of our time was spent getting to know each other,” Falis says. “It helped, meeting with people and talking with them in a nonconfrontational way.”
3) Combining Established Policies and Procedures
When an MOE occurs, both parties entering it have to combine already established policies and procedures into a cohesive whole that makes sense for everyone operating inside the combined business. Similar to dealing with culture, Falis says, there are three paths: take policies from one party, cherry-pick the best from both, or create a whole new set. “If one code of conduct says you can do X, and the other says you cannot do X, and there’s no legal answer, you have to decide what’s best for the combined company,” he adds.
In both of Willis Towers Watson’s mergers, a change committee with representatives from both companies worked through such issues. “Even simple things can get complicated, so you want to move efficiently and get as much input from both sides to make sure they’ve been heard,” Falis says.
Once the policies and procedures of the combined organization are established, it’s important to quickly create the infrastructure and tools needed for employees to follow through on them. After the Willis Towers Watson merger, for example, a new website was created to house all new documents to make it simple for employees to find what they need.
4. Communicating Challenges
People can be resistant to change, so it’s vital for companies to communicate strategically during the MOE process. “People have a tendency to fill a void with negative assumptions, so the quicker you get to them with decisions—whether good, bad, or ugly—or a timeline for when they will be made, the better for employees and the combined company,” Falis says.
Every decision, no matter how small, sends a message and can impact employee morale. Even the name of the combined company matters. “It’s easy for people to see the outcome of these decisions and feel like it’s not really a merger between two equals,” Falis says.
To help manage the communications process during the Towers Watson and Willis Towers Watson mergers, the combined companies created a comprehensive communications strategy. “As integration issues arise, you can’t barrage people with information,” Falis says, “so the company staged these communications and determined which ones had to go out immediately and which ones could be held back.”
5. Setting the Tone at the Top
Once a merger closes, the actions of the CEO and top leadership of the new company directly affect how successfully the company will forge ahead as a single unit. “I’ve come to believe that how the CEO handles himself or herself impacts culture significantly, but it takes a lot of work to do, and it doesn’t come together after just one meeting,” Falis says.
Falis points to Willis Towers Watson CEO John Haley as an example of a leader who has balanced personal decision-making and collaborative decision-making involving voices from both sides of a merger. “He’s done a great job of picking his battles, of deciding whether to make the call himself or get input from both sides of the house, even if it means the decision is going to take longer,” Falis says. “As CEO, John could decide everything a CEO typically would have the authority to decide, but if there’s an issue he knows people care about, he often lets groups come to their own decisions and make recommendations, underscoring the teamwork aspect of the company’s values.”
6. Remembering that the Workforce is the Key Asset
For many businesses, especially professional-services firms such as Willis Towers Watson, their people are their number one asset; keeping employees feeling engaged during the merger and integration process should be a top priority. This is ultimately why deftly maneuvering through the previous challenges is so critical—if one side of the merger appears to lose to the other side, if changes aren’t communicated transparently or clearly, if one culture dominates, or if the chosen CEO isn’t willing to involve others in decision-making as the integration solidifies, employees of all levels could feel insecure, uncared for, and unheard.
“During a merger of equals, you want to minimize disruption, because employee engagement is critical,” Falis says. “You don’t want them to get distracted by issues such as the role they’ll have going forward, their compensation, or whether their job will be impacted because of integration-synergy goals.”
Willis Towers Watson is now moving forward, with its values regarding MOEs helping to drive its success.