Why do up to 90% of Mergers and Acquisitions Fail?

- Finance - Jan 28, 2015

According to collated research and a recent Harvard Business Review report, the failure rate for mergers and acquisitions (M&A) sits between 70 percent and 90 percent.

That is a remarkably high figure, but when you consider the range of business, IT and cultural factors that occur during the average merger or acquisition it is not that surprising.

READ MORE: The 5 Biggest Business Buyouts of 2014

Mergers and acquisitions should never be taken lightly. Not only are you asking two companies to integrate under one corporate mission, but you are bringing together large groups of people with their own personalities, ambitions, behavioural traits and ways of working. The complexity ramps up when multiple branch offices, cross-border IT infrastructure and financial regulation are included.

Without a clear strategy, effective project management and open communication between stakeholder groups, the merger or acquisition will struggle to deliver the desired results. The process must be transparent, realistic and involve all areas of management if success is to be achieved.

READ OUR LATEST MAGAZINE ISSUE: January 2015 

Planning for the Future

Delivering the above generally involves three components:

  • Strategic planning
  • Stakeholder engagement and third-party mediation
  • Company-wide engagement

The first – a comprehensive project strategy – is perhaps the most critical to realising the other components. This means effective management irrespective of the deal’s scale. Merging or acquiring a company can be draining from a personnel and financial perspective, and it can quickly spiral out of control if the businesses have not outlined what they wish to achieve.

This means a unified business plan, enough time to let employees adjust to the change, training programmes for those who need to be brought up to speed, financial and legal adjustments, a consolidated IT department and the creation of a brand identity that everyone can relate to.

Clearly defining the purpose of the merger or acquisition – growth, market share, mutual benefits – will establish realistic goals and a natural process that can be managed. Challenges will occur, that is a fact, so make sure your strategy assesses the potential risks and complications that could arise during the process so you are prepared.

Utilising a Board and Communicating its Vision

Remember, nobody can champion a great business alone and this is particularly evident during a merger or acquisition. It is therefore wise to establish an advisory board that includes major stakeholders, heads of department, internal staff and an outside specialist to guide the process.

Mergers and acquisitions require highly sophisticated expertise so consider bringing in an expert who can assess the situation and planned objectives without bias. An independent source will help challenge claims, validate great business decisions and ensure leadership stays on track in its goals.

The outside specialist will also look to ensure employees receive the support they need through the merger or acquisition. It is crucial that people understand why the changes are taking place, otherwise they will lose focus, become unhappy and potentially be disruptive.

Keeping employees engaged is fundamental. If staff are fully immersed in the changes they will have the knowledge to lead the united company in the new direction, contribute to its mission more and could possibly even act as an advocate for the new organisation internally.

A successful merger or acquisition comes from carefully combining employee engagement programmes with a multi-layered strategy built around communication. With this at the centre of the overarching strategy, organisations will have a better chance of bucking the merger and acquisition trend.

By Esther McMorris, Founder of Nine Feet Tall, a fast growing business consultancy, shares her strategy for long-term M&A success. 

Follow us on Twitter @BizReviewEurope and check out our Facebook page

Like what you see! Signup for our weekly newsletter

Comments(3)

avatar
Tom Wadlow    Jul 05, 2016
Thank you for your comments and apologies for the late response! If either of you wish to get in touch then please email thomas.wadlow@bizclikmedia.com
avatar
Elisa Grace    Jul 04, 2016
Very beautifully described the reasons behind the the failure of merger and acquisition. i want to add few more points in this:-
-Ignorance This is one of the foremost reason in this process parties going for merger or acquisition fails to exchange commercial sensitive information prior to being under common ownership. Top executives do not know this and thus wastes time. Good preparation means the integration can kick off on day one. Speed matters.
-No common vision
-Nasty surprises resulting from poor due diligence
-Team resourcing
-Poor governance
-Poor communication
-Poor programme management
-Lack of courage
-Weak leadership
-Lost baby with bathwater
http://investmentbank.com/mergers-and-acquisitions/
avatar
Dr. J. Keith Dunbar    Jan 31, 2015
Hi Thomas...

Great article and very timely with the resurgence in M&A in 2014 and the current expectation that it will continue in 2015.

So I come to this topic from one major perspective...The root cause of M&A failure or success...is leadership capability of the acquirer and target companies...period.

I have taken the position after my doctoral research at the University of Pennsylvania on collective leadership capability as a predictor of M&A success (Recently published in the September 2014 Harvard Business Review - The Leaders That Make M&A Work (http://bit.ly/HBR-JKD)) that M&As; are major change events. As many know, major change events require collective leadership capability throughout the organization to be successful...in M&As; the same is necessary from both the acquirer and target companies to enable successful integration. This is where I merge your first two steps because the first place that assessment of the acquirer and target companies should start is leadership.

Yet, what I found in work from Dr. Sim Sitkin and Dr. Amy Pablo (The Neglected Importance of Leadership in Mergers and Acquisitions - Original Publication by Sim B. Sitkin and Amy L. Pablo
In Mergers and acquisitions: Managing culture and human resources, Edited by G. K.
Stahl & M. Mendenhall, Stanford University Press, 2004) was absolutely the case. Even after 10 years of other academic research and consultant research, I came to the same realizations as Sitkin and Pablo...
- Leadership in M&As; is ignored or even denied.
- The denial of leadership can be traced back to a disciplinary bias that has led analysts to discuss only what M&A-related advice is quantifiable or lends itself to specific recommendations.
- Yet authors and practitioners know that leadership is important and therefore must be discussed.
- Thus, it is discussed, but only in the most general terms
- The discussion has remained general because analysts have lacked an actionable framework for thinking about the range of leadership dimensions relevant to M&A success and failure.

Because of these issues identified by Sitkin and Pablo, leadership is focused on in M&As;, but only in the most narrow of perspectives. For the acquirer, leadership is typically focused at identifying a leader(s) to work the implementation. For the target, leadership is typically focused on identifying senior executives to retain for 3-year contracts. That is the old model...

In my research, I identified three critical insights to what leadership looks like in successful M&As;.
1. Specific leadership areas (Groupings of leadership competencies) predict M&A success. For acquirers they are Strategic, Outcome, and Network leadership areas. For targets, it was Strategic only.
2. With my data set, I looked at whether senior executives or middle management had a greater effect on M&A success. For acquirers, as expected, senior executives had a greater effect. The surprise came from targets where middle management had a greater effect on M&A success.
3. What was the most interesting and forms the basis for the first M&A Leadership Framework was the identification of a specific set of leadership competencies for both the acquirer and target company that predict M&A success. For acquirers, Act with Integrity, Build Relationships, Influence Others, Motivate Others, Focus on Customer Needs, Show Adaptability, and Develop Others. For targets, Build Relationships, Influence Others, Motivate Others, and Provide Direction.

The implications are huge for successful M&As;. The new model of M&A starts with leadership, specifically, the collective leadership capability of both the acquirer and target companies. By understanding this first and within the context of a true actionable M&A Leadership Framework, acquirers heading into 2015 can position themselves for successful M&As; that leverage the "secret sauce" of success...leadership.

Thanks again for the insights. I would be interested in your thoughts on the role of leadership in successful M&As;.

Cheers,
Keith

Dr. J. Keith Dunbar
Founder/CEO
Potentious