Mergers and acquisitions (M&A) can be challenging. A Harvard Business Review report noted that the failure rate for mergers and acquisitions runs between 70 and 90 percent. I’ve been an executive at multiple international conglomerates and can tell you from experience that targeted gains in sales and profits are often not realized. Like many other aspects of business, it pays to learn from past experience and learning from failure is particularly valuable.
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Mergers and acquisitions (M&A) can be challenging. A Harvard Business Review report noted that the failure rate for mergers and acquisitions runs between 70 and 90 percent. I've been an executive at multiple international conglomerates and can tell you from experience that targeted gains in sales and profits are often not realized. Like many other aspects of business, it pays to learn from past experience and learning from failure is particularly valuable.
Here are seven ways to fail at M&A:
1. Poor strategy: A poor strategy and an inability to execute is one of the more common reasons acquisitions fail to meet their targets. I can recall a time a distributor acquired another distributor in their industry. Once the deal closed, the acquirer basically didn't do anything. Both businesses continued to operate separately and compete with each other. The acquisition made little sense from the beginning, as there was no synergy, and the lack of a solid strategy only compounded the poor performance. The financial cost for making these strategic mistakes is significant.
2. Inadequate due diligence: Once an acquisition is closed, the skeletons come out of the closet. These surprises are usually the result of poor due diligence. This sounds pretty basic, but it happens with great frequency.
3. Lack of leadership: A merger requires a strong and engaging leader. Senior managers must show leadership to employees and walk the talk, or the result will be a de-motivated workforce and poor results. Senior executives must also communicate a common vision of what the new organization is and what it stands for. Without this shared vision the organization will flounder due to lack of leadership.
4. Poor communications: A lack of communications, or leaders communicating the wrong message, often leaves employees concerned and seeking information from unreliable sources. Leaders need to let the employees know why the merger is occurring, why the organization is better off and how the merger will affect their work and job security. There is a much higher chance of failure when leadership allows the “rumor mill” to answer these questions for employees.
5. Overestimation of synergy: Synergy can be over-estimated in many ways — and often is. CEOs would be wise to keep this point in mind. With great frequency, strategy executives look for anything that may help “the math” justify the acquisition, when they feel pressure to make one happen. You might be amazed at how often this happens, but just remember how often mergers fail to meet their targets.
6. Market misjudgment: The acquirer needs to be certain they have an understanding of the market. Reading an analysts report, or two, does not make one an expert on a market. I can think of no better example than the telecommunications market of 1999. It is essential that your marketing, product management and strategy teams learn the benefit of understanding “the customer's customer,” as they often do not. The impact of new technologies is often overestimated in the short term, but underestimated in the long term.
7. Lack of engagement: There is often a lack of engagement that stalls the progress of mergers. Senior executives need to be certain that they work hard to keep all stakeholders engaged. This includes not only employees, but customers, suppliers and owners. Many a merger has failed when the voice of the customer was ignored.
Mergers and acquisitions should never be taken lightly. You are bringing together two different teams and cultures. In this age of global business models, the complexity is even greater.
Before diving in, it is important to remember that acquisitions are risky and failure to meet expected results is common. Be sure your senior executives have a solid, thought-out strategy and consider the issues above, prior to proceeding.
By learning from other's mistakes, you can greatly improve your chance of a successful merger for all stakeholders. The upside of a successful acquisition can be substantial.
Andy Singer is the president of Singer Executive Development, a professional training and development company.
