As the economy has been growing, so to has been deal activity with mergers and acquisitions on the rise. About half of my clients are involved or have been involved in some kind of merger activity and in the Tampa Bay area as well as the nation as a whole, M&A activity has seen substantial increases over prior years.
Chris Matthews of Time reports that “U.S. firms are on pace to have the biggest year in M&A activity since 2000.”
All of this activity is worth watching as most reports on the topic indicate that somewhere between 80 percent and 90 percent of these mergers fail to meet their stated objectives for growth and profits. How then, does an organization that completes a merger or an acquisition ensure that they end up in the top 10 or 20 percent? By following these four keys for bringing organizations together.
Don’t forget about leadership and culture during due diligence. Too many dealmakers are myopically focused on the financial analysis of a potential acquisition. While it is true the deal has to work with the numbers, the difference between success and failure is not about the rigor of financial analysis. The success of mergers and acquisitions is about people working together. So don’t forget to do an assessment of the leaders and key people involved on both sides of the deal. If you need to, get some help to work on understanding the strong elements of each culture and where there are potential synergies as well as clashes and prepare for how you will deal with them. Also, figure out how your new leadership team is likely to shake out with members from both organizations, but don’t make any promises. Sometimes in an effort to appease leaders, commitments are made during due diligence that come back to bite later in the process.
Make sure the leadership team works like a team, not a committee. Once the merger has taken place, most leaders will, understandably, be focused on protecting their turf and meeting their performance objectives. While that might work in some organizations, your real success and dramatic growth in blending two cultures comes from getting them to work as a team with shared goals and shared failures versus individual objectives. That will cascade throughout the rest of the organization, and greatly influence the cultural dynamic of teamwork and collaboration. A lot of profit dollars can slip through the cracks of silos that get created during a merger.
It’s not over when the technical systems are integrated. It is not easy, but what needs to be done to integrate systems is often straightforward. People integrations, on the other hand, don’t always work as they look on paper. When I worked with AT&T as they merged four large organizations to create one Fortune 10 company, CEO Randall Stephensonsuggested to a group of officers at the start of one of our sessions, that while he felt good about the technical integration of the businesses, what kept him awake at night was getting leaders from the different companies to work together. It is easy to remember the importance of communication at the start of a merger but it is at 6 months, 12 months, even 18 months post-merger, that you need to be focused on how you are communicating and the messages people are receiving about the integration. Create an integration team whose primary responsibility is the creation and adherence to a new culture for the new entity.
Celebrate gains, and sustain progress. It is not uncommon to hear at some point about “merger fatigue,” a very real phenomenon that exists when people are working at maximum capacity and feel exhausted by change. (As an aside, this happens in companies not going through a merger and they just call it fatigue.) Leaders need to be cognizant of this condition and recognize the good efforts made by employees to bring the organization together, and reward the contributions that help the organization reach its objectives.
Ultimately, leaders want to integrate two or more organizations to become one, minimize the risks of the merger, and rapidly achieve the growth goals and objectives. The financial and technical side of the equation tends to get the most attention, but it is the people side of the equation that will produce the value of the integration.