Everyone today talks about mergers and acquisitions. They have become the next wave of doing business. In recent years, the number of mergers and acquisitions that have taken place across the world has been staggering and has affected nearly all industries, as well as large and small companies alike. Increasing globalisation has also given rise to a higher number of cross-border mergers.
The reasons given by companies for this recent wave of consolidation have included cost-cutting through economies of scale, strengthening the company’s market position, gaining access to new markets, global expansion, gaining a talented workforce, acquiring new knowledge and expertise, gaining a new customer base, and pursuing new technologies.
Wikipedia says "Mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can aid, finance, or help an enterprise grow rapidly in its sector or location of origin or a new field or new location without creating a subsidiary, other child entity or using a joint venture."
However, whatever reasons may have led you to do a merger, the bitter reality is that instead of reaping in benefits and synergies as calculated, they end up failing. Recent studies have indicated that 60-80% of all mergers are financial failures when measured by their ability to outperform the stock market or to deliver profit increases. There can be many reasons that can lead to the failure of an M&A. However, some of the common and major ones are listed below:
Lack of synergies: the feeling that 2+2>4 is not always correct. Suppose if the merger is between #2 and #3 trying to take over #1 by merging. Typically, the customers of both #2 and #3 get confused and move to #1, leaving the merged entity in the lurch. It is not always poosible to scale that high up.
Lack of communication: employee communications is one of the most important issues which needs to be addressed during a merger or acquisition process. It is seen that middle management and lower level employees in particular are kept in the dark when it comes to merger issues. There is a deliberate withholding of information from employees on the part of the senior executives who are dealing with the merger. This contributes to confusion, uncertainty and a loss of trust and loyalty on the part of employees. In some cases, companies even feel the need to lie to their employees by making reassuring statements about the continuity of their roles and pay packages, and by falsely stating that there will be no redundancies. It is really very important to be clear and consistent, even if the messages may not always be positive for everyone.
No plan: Two companies try to sometimes merge and see if they can work out something in the long run. But if both of them didn't have a plan to begin with, then they may end up not having a plan even when they join. The integration plan is not put in place and so the execution becomes faulty. Integration between products matters a lot, and a company that tries to grow by acquiring many companies tends to fail simply because it looks like a jigsaw puzzle that has not been put together properly.
Poor and hurried decisions: The decisions sometimes are made in a hurry and the target is expected to deliver the results in a short time which becomes infeasible. Will the CFO of the bigger entity become the CFO of the combined entity even if the CFO of the smaller company is more capable? Put the wrong CFO on top and he will botch up, while the better CFO resigns in disgust and moves on to a competitor.
Cultural Conflict and people issues: This is by far the most important factor especially if the parties involved belong to different culture dimensions. The problem mainly arises because the target is seen only from a financial perspective and they give less importance to the cultural issues within the company. Even if two companies seem to have all the right ingredients in place for a successful merger, cultural differences can break the deal. It is not enough for two companies to appear to fit well on paper; at the end of the day, if the people are not able to work
together, the merger will not succeed.
Loss of Key people and customers: Sometimes the top management who were responsible for the transition leave the organizations for better places making the merger a failure. This also hampers the trust of the lower level workers. Also, if some of the most talented employees, responsible for bringing in valuable business to their organisations leave, this will result in the loss of key customers.
Ego clashes/Power politics: Power struggles can be a major obstacle to the success of mergers and acquisitions. Clashes between the management of the two companies, as well as clashes within a company’s own management, can lead to the demise of a merger. Not only do power struggles distract management from focusing on business issues, but managers also tend
to place their own self-interests above those of the business, and often make decisions that will benefit them at the expense of the rest of the organisation
Some of the recommendations for a successful merger are:
1. Extensive and Regular Communication
2. Effective Planning and post-merger integration teams
3. Retaining Key People
4. Managing cultural differences
5. Proper due dilligence
6. Training and Development
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