Why most mergers misfire/Les raisons pour lesquelles la plupart des fusions sont des echecs.

Pages:4(4)
Author:Bart, Chris
Position::EXPERT ADVICE
 
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(And why this doesn't have to happen to yours)

Not to be too blunt, but most business mergers simply don't merge very well.

Research from the Harvard Business School found that, even after waiting five years, as many as 86% of M&A's failed to achieve their defined up-front 'expectations of success'.

And the number of acquisitions that have led to huge write-downs has increased in recent years. The HP fiasco with Autonomy is most notably the latest. But Microsoft has also had to write down virtually the entire cost of its aQuantive acquisition. And Caterpillar tossed off nearly $600 million related to its 2011 acquisition in China, citing possible accounting fraud.

With the kind of track-record noted by the Harvard studies in organizations of all sizes, it's clear that companies need to improve much more on their due diligence before taking the leap. Yet, due diligence is about much more than simply auditing the books, checking the pipeline of new products in R&D and reviewing the outstanding sales orders. That's the relatively easy stuff.

Experience has taught us that the primary reason for the failure of mergers is cultural clashes that undermine the acquirer's ability to execute on the desired strategy for the new organization. In essence, the cultural fit of the two partners is usually paramount in deciding the successful outcome of the merger. As a result, conflicting and un-aligned organizational and administrative arrangements represent the death knell of most merger plans.

Ironically, despite their proven disastrous track record, M&As continue to be sold as a way to increase a firm's market valuation. So why do Boards continue to eagerly approve them? We think it's all about 'the jazz' of acquisitions ... and here's how the process generally unfolds:

BEFORE THE M&A OCCURS

We are not suggesting that M&As are never a good thing. They can be. However, M&As are like marriages and marrying to get away from one's own problems rarely works in life or business. Therefore, before deciding to march down the aisle with a stranger, companies should look beyond the numbers and into the heart of a potential partner organization. The following steps outline how to gain an understanding of an organization that goes beyond the information typically reviewed as part of due diligence.

  1. Compare the Mission, Vision and Values Statements of the two companies.

    This is a critical step in ensuring alignment between the two organizations. Assuming the mission statement of the company being acquired has been implemented well, the mission statement should provide a strong indication as to the philosophical similarities--and differences--between the two organizations.

  2. Review key administrative arrangements for cultural fit.

    Mission statement similarities are important, but it is just as important to assess the degree to which the organizational systems and processes of the prospective company are aligned with its mission. Accordingly, we would advise doing a strategy execution audit to see to what extent there is a direct connection between the phrases used in the target's mission and vision statements and its management systems. Then compare the results with an assessment of your own organization's mission-systems alignment.

    If your audit indicates that there are inherent gaps between the mission and values statements of the two companies and/or the way that they are reflected throughout each organization's administrative systems, trouble is brewing. While it doesn't mean that a merger or acquisition should be avoided, it clearly should set off alarm bells. Indeed, the greater the differences, the more work and time will be involved in harmonizing them. Meaningful cultural change does not happen quickly. Now, if the attraction still exists for the business move, be sure to adjust the execution plan to reflect the extra time, effort and expenses that will be required to create one cohesive business entity.

    AFTER THE M&A OCCURS

    Once the merger or acquisition is legally completed, the next step is to capture and build the synergies required to create the competitive advantage and economies of scale that everyone hoped would arrive by virtue of the two companies joining forces. Many teams will want to jump directly to 'execution'. And execution is truly important, but it is useless in the face of a bad or absent strategy. The best place to start this journey is once again with the mission, vision and values statements.

  3. Build the 'new' mission statement.

    The new...

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