Reasons for M & A Failures
During the past four decades I have seen and been involved in many mergers and acquisitions of many different sized organizations. Some have worked out extremely well for both companies involved and others have had a win-lose impact.
This win-lose impact can be seen from both sides of the acquisition or merger. Meaning I have seen the company being acquired as losing – both in future value, culture and ultimate dollars or stock received. And, there are times when the acquiring organizations turns up as the loser. Some are huge failures – such AOL purchasing a internet company for $ 850 million and three years late sell the same company for a grand total of $10 million.
So, what happens to create ( or better yet – avoid the failure cycle from the five major reasons for M & A failures) these losing positions from the M & A game of acquisition and mergers?
Here are the most common or major elements for M & A Failures…
- Lack of Planning for Synergies with the Combined Organizations
When the leadership team is only blue skying the image of a merger or acquisition, then the little details they overlook will turn into the nightmares of tomorrow. There must be a consistent review at every step of the negotiation stages – does this make sense? Exactly what reasons are we doing this investment? Does it still feel right in my gut? (Gut is the expression of the little voice inside telling you if it is right or not – good deal or soon to be your biggest problem.)
- Leadership Power plays Based on Politics rather than Performance
If power players within the leadership group get greedy or feel they are losing power and control, then they will insure their position by getting less competent direct reports or other performance centered existing players who are seen as threats to their power. Political garbage needs to stay out of the process or soon you will have one of two consequences – 1. Poor leadership due to gaps in performance or 2. Inside fighting for power and position resulting in more political garbage entering the stage. Either way, performance and morale take the blunt of the impact.
- Slow Integration of Processes, Personnel, Systems and Accounting
Here is another example of poor planning and up front discussions and evaluations. If proper due diligence is done before the acquisition, the recognition of major conflicts with technology, systems and processes would have been uncovered and documented. This activity would have allowed discussions with vendors of hardware and software packages as well as the more important information services group. How can the systems be merged and what would be reasonable the time line for successful conversion? When a companies have been merged the number one issue here is a lack of up to date information. I have found cases where managers and executives are making current decisions based upon either no data points or old data or patched together data with errors and omissions throughout. Please more planning on merging these very important elements of success.
- Using only Financial Reasons for Mergers or Acquisitions
Now this is the one that really gets my attention. More often than not the entire merger or acquisition is based upon the financial numbers – only. This situation is usually lead by executives and bean counters who do not care about the impact of people on their organizations – only the numbers. This is the old school or Theory X at work in today’s business environment. When executives only use the financial side of the equation, the four factors will be in play at some level. Yet, the real reason was the total reliance upon financial data. The best leaders think about the total picture of a potential merger or acquisition and make their decisions using a balanced and well thought out approach.
- Misaligned Cultures and Lack of Leadership to Create a New Culture
Culture is probable the least understood and reviewed element or factor in the merger and acquisition process. Yet, interestingly enough, it is the one area that most often delays a successful business integration. Some of the most common errors are… 1. A big rules driven corporate company (with its slow moving culture) is combined or acquires an entrepreneurial company ( with its fast paced, fast decision making and innovative team culture) with conflict raising on day one. 2. Executives do not value the impact of Culture and therefore assume it will take care of itself without any guidance or nurturing. Surprise again, conflict and poor communication between the different cultures with no one new enterprise culture being created. 3. Political versus Performance based cultures run headlong into each other. Politicians will usually win in the short term thus leading to a severe talent exit from the performance based group or individuals looking for more challenges and autonomy.
If you are planning or just looking for acquisition targets keep these issues in your top of mind thinking – if you want to avoid failure at a later date. Focus on the reverse of the above issues with your thoughts and planning processes. Never rely upon just one element or factor without thinking and discussing all five possibilities for failure.
When you completely cover your bases, success can be found using mergers and acquisitions as your strategic tool of choice. When executed properly it is one of the fastest methods for growth and profitability.
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Tags: Acquisition mistakes, avoiding business failure, executive decision points, Five Reasons for M and A Failures, Leadership, Reasons for Mergers and Acquisitioin failure, strategic issues to review, Voss W Graham