The Change Dude’s Blog

Post Merger Disintegration – Don’t Let This Happen to You

Mergers and acquisitions are always atop the list of tactics to grow a business.  Unfortunately, most fail to achieve the desired outcome. Mergers and acquisitions (M&A) have a high failure rate. According to various studies, between 70% and 90% of mergers fail to achieve their intended goals. This high failure rate is often attributed to challenges in post-merger integration, cultural clashes, and operational difficulties. In my experience of being involved in M&A as both a participant and consultant I can attest that even with a stratospheric level of planning and engagement most mergers disintegrate within a few years.

The real challenge in M&A is the complexity that comes with blending cultures, operational processes and humans.  In every M&A both sides of the transaction feel a sense of loss at the operational level. Senior executives jump for joy at completing a difficult process, but at the level where work is done the sense of fear, dread and uncertainty permeates both sides of the transaction.

Millions of words have been written about M&A so there’s no magic wand to creating accretive value from a business combination. My goal in working with clients engaged in a combination is to highlight the hot spots while mitigating the evident failure risks.

Strategy Integration

Transactions are always secretive and highly compartmentalized during the diligence dance. The focus is on how to get the deal done. Once the deal is consummated the combination work begins. In the words of Steven Covey “begin with the end in mind” meaning that the merged entity’s strategic goals are aligned for long-term success. You must get this right. Again, no magic here, just the hard work of building a vision and clear strategic objectives that integrate the strategic plans of both companies.

Once the vision and strategy are determined through a collaborative process inclusive of both business leadership teams, communicating that vision clearly and honestly will build the foundation to achieving the goals. A strong foundation is a launching pad, a weak foundation will sink at the first hint of a storm.

Cultural Integration

Culture can best be defined by a common language, common artifacts and common rituals. A massive Post Merger Integration (PMI) challenge is to either blend the cultures or adopt the strongest culture of the combination. Bringing together different corporate cultures can lead to conflicts and misunderstandings when the work of establishing a common language is incomplete. When I talk about a common language it means a common set of financial and operating metric definitions, common roles and titles and clarity of business process standards. Employees from both organizations will have different ways of working, communication styles, and values. If these cultural differences are not addressed, they can lead to decreased employee morale, reduced productivity, and even the loss of key talent. Effective cultural integration demands clear communication, leadership commitment, and initiatives that promote a unified corporate culture.

During my engagement with the PriceWaterhouse and Coopers and Lybrand merger we established a leadership engagement program that brought Partners from both firms together in workshops globally. Our goal was to have conversations that included every leader in both firms to build a common language, understand the strategic objectives and discuss difficult issues in a safe environment. These firms were of wildly different cultures and the leadership level working groups assisted in a smooth transition to an new firm, PriceWaterhouseCoopers (PWC).

Integration vs. Disintegration

Successful M&A transactions build accretive value for external shareholders and stakeholders in the business. Taking proactive steps to ensure clarity of strategic goals and development of a common culture is crucial. Financial and operational integration may take three to five years to fully complete. Early days should focus on direction setting and human engagement. Ultimately, the success of PMI depends on the ability of the merging companies to work together towards a common goal and realize the anticipated benefits of the merger.

August 14, 2024 Posted by thechangedude | Uncategorized | Leave a comment