7 Reasons Your Merger or Acquisition Could Fail
Absorbing another company is a difficult endeavor, no matter how you slice it. Here are a few pitfalls to avoid on your own M&A journey.
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If you don’t define the value of your new company, your competitors will.
And they’ll do everything in their power to exploit the disruptive nature of your transaction to target your customers and, perhaps more even more significantly over time, your perceived position in the marketplace.
Too often, companies focus on the value of their transaction to the companies or shareholders, and not enough about how it benefits customers or distribution channels.
Integration efforts usually center on redundancies to quickly capture synergies.
This is smart business.
But all too often, sales pipelines and distribution channels are neglected in favor of those efforts.
By the time the bottom-line integration is in place, post-deal revenues are falling short.
And sometimes sales and marketing costs are cut too deeply to boot, putting revenue growth at a higher risk than was anticipated at deal-time.
Make sure you pay as much attention to the top line as the bottom line.
On the opposite side of “Ignoring the Top Line” is the lack of full integration, or even running a company as a separate entity, to try to keep revenues in place.
Unless you’re buying a company in a genuine diversity play, failure to integrate rarely makes sense.
You can’t capture synergies without combining the entities to create new value (hopefully on each side of the deal).
Buyers are often sloppy with their due diligence.
Take the time to dig into financials and contracts and any potentially pending legal issues so hidden problems don’t crop up later.
Due diligence is painful and tedious but necessary, so make sure you assign detail-focused people with appropriate expertise to these tasks.
Aside from helping you avoid unpleasant surprises later, proper due diligence can help you avoid the trap of our next slide… unreal expectations.
Often, companies simply expect too much from their acquisitions.
They underestimate revenue loss and time to integrate and overestimate cost savings.
There have been oodles of studies on why mergers fail to meet their targets and the reasons run the gamut – from underestimating one-time costs and integration timelines to using inappropriate comparable deals when estimating synergies or failing to run deal analyses from the bottom up and not just the top down (see previous slide on Sloppy Due Diligence).
Sometimes, it’s simply the challenge of finding advisers in a merging (read: competitive, at least from their perspectives) environment that will speak truth to power and challenge management’s unrealistic expectations (see Managerial Arrogance on slide 7).
It’s been said so often it’s a cliché – mergers and acquisitions often fail because of cultural incompatibility. It’s also true.
Let’s set aside traditional and nouveaux methods of defining company cultures and simply imagine the combination of two firm — one with a centralized management structure and one with a decentralized structure.
How many successful integrations of firms like these have you witnessed? How about a merger of a company that hires lower-wage, inexperienced personnel with one that pays top-of-market for superior knowledge and experience?
Or the pairing of one firm with rigid processes and another based on empowerment? (Yes, some of these overlap, but not always…)
There are many methods for bridging cultural divides, but sometimes the divide is simply too great to overcome.
Managers – especially CEOs – in companies growing via acquisition, often live in distorted realities.
These distortions are due to the power imbalance between employers and employees created when employees fear job loss following an acquisition.
Even though the term “synergy” can be used in many ways following a merger or acquisition, to employees it’s code for one word, no matter your true intentions: layoffs.
It often applies to the acquiring company as well as the company being acquired.
Either way, it creates a dynamic wherein subordinates try to avoid telling their managers (and especially CEOs or owners) what they don’t want to hear (see Unreal Expectations).
The resulting rose-colored filter deprives decision makers of balanced analyses or the kind of “reality check” needed to make prudent M&A decisions, both before and after the deals.
Managers – especially CEOs – in companies growing via acquisition, often live in distorted realities.
These distortions are due to the power imbalance between employers and employees created when employees fear job loss following an acquisition.
Even though the term “synergy” can be used in many ways following a merger or acquisition, to employees it’s code for one word, no matter your true intentions: layoffs.
It often applies to the acquiring company as well as the company being acquired.
Either way, it creates a dynamic wherein subordinates try to avoid telling their managers (and especially CEOs or owners) what they don’t want to hear (see Unreal Expectations).
The resulting rose-colored filter deprives decision makers of balanced analyses or the kind of “reality check” needed to make prudent M&A decisions, both before and after the deals.
Consultants have been shouting it from the rooftops for decades: eight in 10 M&A transactions fails to meet their financial targets.
There are entire books about M&A success and failure, and many experts are consulted in advance of deals in an attempt to increase the likelihood of M&A bliss, but with varied degrees of success.
Absorbing another company is a difficult endeavor, no matter how you slice it.
Here are a few pitfalls to avoid on your own M&A journey.
Khali Henderson is senior partner with BuzzTheory Strategies, a marketing consulting firm specializing in the channel.
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