Below is a video that offers two basic explanations for M&A failures and the perspectives of 6 M&A battle-scarred veterans.
The Stats For Successful M&A Integration Are Pretty Dismal
Why? Here are two basic drivers for M&A failure:
- Culture. Executive teams evolve through distinct stages. When an organization at a lower stage acquires one at a higher stage, things can unravel rapidly.
Consequences can include: slow decision-making, poorly aimed innovation, and fleeing talent.
- Business model. Merging businesses with different key capabilities under the same roof can be problematic. In some businesses, the basis for competitive advantage is superior products, while in others it is superior customer relationships. Trying to both at the same time leads to the mushy middle, and ultimately to the performance flatland.
Consequences can include: out of control costs, unfocused innovation investments, unresolved conflicts due to lack of clear strategic priorities.
Watch this video (4:31 mins) to explore why and how integrating business cultures and business models fail or succeed.
Excerpts from Experts
I posted the following survey on a LinkedIn M&A discussion forum. It became the leading thread for a couple weeks, with many a M&A battle-scarred veteran chiming in. Below are a few outtakes. I like to think of them as postcards from the frontlines.
"All of the above and more. The deal on paper obviously has it merits, but far too often the due diligence is heavily weighted on the numbers, structures, and commercial synergies. Fundamentally, it is down to people and the quality of leadership through a unique transition/transformation."
"Change of ownership and mergers often don't change hard numbers initially but they do change soft ones. And the soft numbers like culture (e.g., customer or employee satisfaction) turn into hard ones like budget variance, customer attrition and staff turnover/absence."
"Power and personal agendas, whether in harmony or disharmony with strategic aims, or whether transparent or not, can be the single point of failure. Transformational leadership is vital for success. This demands the merged entity find a new centre that can hold together for several years."
"When an M&A due diligence primarily assesses the financial and legal facets of a business and fails to perform an effective operations due diligence, which is common, the new entity is very likely to fail."
"The financial guys just don't get the financial implications of the human data. It's like talking to a wall."
"Thinking back on over several dozen acquisitions and divestitures, here is what comes to mind. The successful ones had mutual synergy/respect and a great process for engaging both sides! It's people that ultimately make or break the acquisition."
Do you see how these comments tie into the themes in the video?