Why Mergers Fail
Mergers and acquisitions are common – and often lucrative – exit strategies for business owners. A well-designed strategic merger creates synergies that may yield increased market share, revenue, and profits. Not every deal is destined for success, however. If fact, many fail. This post will explore some of the main reasons strategic mergers can fall short of success.
Each organization has its own unique purpose, values, and culture. Reconciling these differences can create several challenges including conflicts, misunderstandings, and an overall lack of trust among employees. Cultural due diligence is just as – if not more – important as financial and operational diligence. If your organization is the target of a prospective acquisition or merger, do not wait until the final stages of the deal preparation to address culture. Culture is the backbone of most great companies, and it will be even more important inside your newly merged organization.
Poor integration planning
Integration planning is when organizations collaborate on the linking of their business operations, systems, and processes. Poor planning here can result in delays, disruptions, and decreased productivity. It can also be a drain on the organizational culture. A well-defined integration plan should be finalized before the deal is closed. The plan should include timelines, milestones, communication strategies and clear definitions of ownership. Both parties (not just the acquiring or larger organization) should have input into this planning process.
Lack of leadership
Leadership is critical to the success of any major business initiative, but it’s especially important for strategic mergers and acquisitions. It’s important to have a strong leadership team in place to provide clear direction, set priorities and communicate effectively with all stakeholders. Often leadership teams can evolve throughout the deal preparation and following the deal close. Ensure there is clarity around who has the final say as well as how to ensure every stakeholder has a voice.
There are often significant costs associated with a strategic merger or acquisition. Legal fees, transaction fees, and integration costs can all add up quickly. If the merged or acquired company doesn’t generate enough revenue to offset these costs, it can create a significant financial burden on the newly formed organization.
Loss of key personnel
Mergers can be disruptive for employees. There may be redundancies or changes in roles and responsibilities (either real or perceived). Ensure that you are communicating regularly with all team members. Also, be sure to provide a safe outlet for them to voice any concerns before, during and after the merger. If key employees – especially leaders – leave the merged company, it can lead to a loss of institutional knowledge and expertise and contribute to cultural erosion.
While strategic business mergers and acquisitions can present significant benefits, they also carry significant risks. Thorough due diligence and comprehensive planning can help mitigate some of the risks. By addressing some of the common challenges of mergers, you can help ensure that the benefits are more readily achievable.