3 Ways Mergers & Acquisitions Fall Apart
I have been at the forefront of a few M&A deals in my career. Some have started out sluggish but turned wonderful in the end. Others looked great out of the gate, then crashed and burned. Some were stillborn. Some were absolute dreams. It shouldn’t be surprising that you get mixed results out of M&A. According to Harvard Business Review, somewhere between 70% and 90% of acquisitions are failures. That number will sober you up fast if you are drunk on expansion.
The M&A strategy has worked fabulously for some, namely smaller firms who wanted to get larger through purchasing someone else’s company. Many times, if you have a lot of confidence in your management team, you can grow by buying someone else’s problems.
Here are three pretty common ways M&A strategies fall apart:
1. The Cultures Clash With Each Other
If you take two established businesses and analyze each of their cultures, you will probably find there are more differences than similarities. When you try to merge these two workplace mindsets together, you will often get distrust, discord and hard feelings. Reconciling the differences in two different cultures is a very daunting challenge for management. Heck, trying to solve the problem in one culture can be enough of a challenge for even the savviest CEO.
You have to make sure, in the best way possible, that both sides acknowledge that merging the two companies was a win-win for all involved and solving this culture rift is vital. You must have a lot of discussions on what the new culture (a mix of acquirer and the acquired) looks and feels like. If you can’t find some common ground for both sides, chances are the whole thing will fall apart in the disastrous fashion.
Always incentivize the employees to do the right thing where the merged company is concerned. You cannot keep things separate in the old and new company, almost everything has to become new and accepted if you want any hint of success. Employees of the acquired will become resentful if they have to fully adjust to the acquirer’s culture with nothing left of their previous work environment.
2. Blurring Of The Former Clear Differentiation
Before you decided to merge or acquire the other company, what was it that attracted you to it? What made them unique? If both companies had strong brands with high differentiation strategies before the M&A, chances are that you are about to dilute that when you make two separate companies into a new one.
Was it in in a different market segment serving different customers? What is that going to do to the brand you’ve work hard to build? Perhaps it would be better to leave them as separate entities fully exercising their highly clear & differentiated brands or perhaps it’s struggling and would be better off being totally absorbed by your more dominant brand strategy. These are the highly challenging and dollars to donuts types of decisions you have to make.
Just make sure you don’t destroy something special in the process through assimilation.
3. Undermining The Brand
It’s not out of the ordinary for two companies that offer distinct services or brands to join forces. Usually, the rationale for this move is that through M&A, we will both be stronger and more powerful than ever! We will create unbelievable synergies, way more than the sum of our parts. Why wouldn’t our customers love us even more? Reality check: the customer rarely sees it that way.
Most buyers are not looking for a Swiss Army knife. They want to buy a saw. They want to buy a screwdriver. They want to buy a corkscrew.
Strong brands are built upon simple associations in our minds. When someone wants to ship a package overnight, they think Fed Ex. When a CEO needs help with business strategy, they think Clear Vision. But when Daimler Benz bought Chrysler, what did they think their customer wanted to buy? A Mercedes Benz or a Chrysler? Or a Mercedes Chrysler? Two very strong brands immediately became one weak brand. What were customers supposed to think when AOL bought Time/Warner?
Bringing two businesses together is a major initiative. It will take a special set of skills and a high degree of focus. You definitely will not be focusing on your critical responsibilities, as you will have a whole new set of challenges to tackle. If you are serious about your M&A strategy as a vehicle for growth, carefully consider doing your full due diligence and don’t be afraid to back away if it’s not aces, straights and flushes.
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