3 Hidden Traps That Make Mergers and Acquisitions Fail

by Dora Wang on Apr 7, 2015 8:00:00 AM

3 Mistakes That Make Mergers and Acquisitions FailWith the benefit of growth opportunities in new clients, products, or areas around the globe, it seems like mergers and acquisitions would generally be a good idea for a company looking to expand its reach. But often, that is very far from the case.

VSC Growth found some troubling statistics about organizational change:

  • About 70% of mergers and acquisitions fail to reach expectations
  • More than half of mergers and acquisitions decrease value
  • However, 70% of CEOs incorrectly believe their M&As were successful

There is a massive distance between what CEOs and other company leaders perceive and what the actual results of organizational change can be. It’s practically a coin toss on whether your plan will destroy company value. There are three main reasons M&As fail, but they can all be avoided.

Fools Rush In

When companies move forward with a merger or acquisition, there is this “get in and get out” mentality driven by risk-averse CEOs. They perform due diligence, dot their Is and cross their Ts, and sign the deal. However, due diligence is often not enough. McKinsey reports that 32% of merged companies find their synergy estimates were wrong. In essence, the basic due diligence of the deal was flawed.

Maybe due diligence isn’t enough. During this stage, companies should be planning ahead for integration. The strict, pure process mentality can actually blind company leaders to issues in integration and synergy, which means they’re incorrectly estimating value. Follow best practices, but leave yourself open to flexibility.

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Puzzle Pieces Sometimes Don’t Fit

So often mergers and acquisitions are based on an industry or product fit. But arguably more important is the cultural fit of the two companies. Overlooking this could have dire consequences.

It can be as basic as dress code. If one company is lax, allowing employees to wear jeans and flip-flops while another is strict business attire, the energy and culture of the new company post-M&A will be wishy-washy. And without a strong culture, your company’s core is lost.

Rather than focusing on industry, make cultural fit a crucial element of any M&A decision.

It’s Not All About the Money

While CEOs are caught up with value and money, the employees in the trenches experiencing the merger or acquisition can often feel lost. And post-organizational change, if employees don’t know where they fit in the new company or what’s expected of them, it can cause low morale and lack of productivity, bringing down the entire organization.

Instead, ensure HR takes a leadership role in the merger or acquisition. Open the doors of communication, and never forget that there are people involved in this deal, not just dollar signs.

Statistically, organization change is a risky endeavor for businesses, but by setting yourself up for success, you can start to change that data.



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This post was written by Dora Wang

Dora is an employee engagement researcher for TINYpulse and managing editor of TINYinstitute. Having grown up in Texas, she is now firmly settled in Seattle, where she spends her free time reading comic books, wrangling her three cats, and (of course) rooting for the Seahawks.

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