| To fully understand merger failures we need to | | | | suggests that cultural incompatibility is the single largest |
| understand the motivation behind M&A activity - | | | | cause of merger failures. According to Bibler the |
| which is primarily about the creation of value by | | | | difficulty of blending two organisations lies in the fact |
| exploiting [what is euphemistically referred to as] | | | | that each group tends to see the world through its |
| synergies. | | | | own biased cultural filters, which he refers to as |
| Technically speaking, "synergy" is defined as the | | | | "familiarity blindness" or "cultural trance", and this cannot |
| increase in the merging firms' competitive strengths | | | | be overemphasised as a cause of merger failures. |
| and resulting cash flows beyond which the two | | | | A very personal perspective... |
| companies are expected to accomplish independently. | | | | What really bothers me is the way the system |
| The word "synergy" entered merger vocabulary during | | | | currently works for remunerating all of the professional |
| the 1960s merger wave, and was used to describe | | | | advisors who provide services to the corporate world. |
| gains from conglomerate mergers that could not be | | | | I would welcome the day when professional advisors |
| readily identified, but were presumed to be present to | | | | and senior executives have a significant part of their |
| explain why the mergers occurred. | | | | large remuneration linked to the medium term [i.e.3-5 |
| If it were not for the catastrophic failure rate of most | | | | years] shareholder value they created - cos I |
| mergers and the destruction of shareholder value and, | | | | somehow feel that might go a long way to redefining |
| most importantly, the human cost, then this could be | | | | the whole concept of "synergy" and reducing the |
| amusing. But to my mind it isn't, it is an appalling | | | | percentage of merger failures. |
| indictment of the business world and their advisors that | | | | Excuse the lateral thinking for a moment - but can you |
| [just as in the world of change management] 70% of | | | | imagine civil engineers or construction companies or |
| all M&A activity fail to realise the intended benefits. | | | | the people who build nuclear power stations - working |
| There have been endless studies over the past 30 | | | | on the same basis - where a 70% failure rate was |
| years to explore the reason for merger successes | | | | accepted? Can you? So why on earth should the |
| and merger failures. The overwhelming evidence is | | | | world of business be any different? |
| that over 70% of the time, mergers do not create | | | | Why does this bother me? Quite simply, because of |
| synergies and shareholders of both companies | | | | the very considerable, unnecessary, and totally |
| involved do not see gains in shareholder value. | | | | avoidable human cost. |
| According to a survey published by KPMG in 2008, the | | | | So How to avoid these risks of merger failures... |
| proportion of M&A deals that have reduced value | | | | The best way to avoid these merger failure reasons is |
| has increased by 50 percent in the two years since | | | | to conduct a "soft" due diligence audit, focusing on the |
| their previous survey. Culture remains one of the top | | | | human resources aspects of the merger to identify (1) |
| post deal challenges with companies continuing to link | | | | cultural difference and issues to be faced, and (2) the |
| post deal HR challenges with cultural complexity. | | | | impacts on those people who are going to be most |
| Greatest risks to merger success are all people | | | | affected, and those people who are critical to the |
| related. | | | | success of the merger. |
| A survey conducted by A.T. Kearney in 2004 to | | | | And as my contribution to all this, I have developed a |
| identify the most critical phase to merger success or | | | | diagnostic process that allows a company to test the |
| merger failures, revealed that whilst the majority of | | | | impact of a proposed business initiative or venture on |
| 53% stressed that the actual implementation phase - | | | | those people most affected by it, to identify why it |
| often referred to as the "post-merger integration" | | | | may fail and to establish precisely what has got to be |
| phase - bears the greatest risk - this post-acquisition | | | | done to make it a success. |
| phase is the most ignored. | | | | This tool can be applied to a proposed merger as part |
| In a study of 40 British companies, Cartright and | | | | of the HR due diligence process, to identify and |
| Cooper [1995] reported that all 40 conducted a detailed | | | | assess the cultural issues that will be encountered. The |
| financial and legal audit of the company they intended | | | | tool is sufficiently flexible and scalable to be adapted, |
| to acquire, but that not even one of these same | | | | modified or enhanced to meet a specific requirement. |
| companies made any attempt to carry out an audit of | | | | It is low tech and simple to understand and apply, it |
| the company's human resources and culture to assess | | | | involves staff at any or all levels and enables them to |
| the challenges concerning integration of the | | | | articulate difficult issues in a non-confrontational way, |
| organization they were acquiring. | | | | and it can be undertaken quickly and before large |
| A brief review of many business and academic | | | | sums of money are irrevocably committed to the |
| studies into the factors impacting merger failures | | | | proposed merger. |
| reveals the greatest risk of merger failure existed in | | | | The output of this process forms the input for the |
| the area of people issues, and proposes the value of | | | | creation of a programme management based |
| a "soft" due diligence audit focusing on human | | | | approach to managing the change management and |
| resources to identify cultural difference and issues to | | | | HR related aspects of post merger integration |
| be faced and impacts on those people who are critical | | | | aspects. |
| to the success of the merger. | | | | For more on this: " Avoiding merger failures " |
| Dominic Fong of Curtin Business School said: "One | | | | I invite you to take advantage of my 7 FREE "How to |
| critical factor that befalls a merger is cultural conflicts....". | | | | Do It" downloads that will take you through all of the |
| T.J Tetenhaum describes culture "as the heart of a | | | | key stages of " How to manage change " - and show |
| merger integration". Another writer Richard S. Bibler | | | | you how to manage successfully. |