Why Mergers and Acquisitions Fail
Mergers and acquisitions (M&A) can be extremely exciting for the organisations involved. If you still don’t know what they exactly are maybe you should check out this Wall Street Prep M&A guide before delivering deeper in this article. The promise of a more productive future, bigger profits or simply a more dynamic and varied offering to clients are all tempting incentives to enter into a deal. But statistics show that 50 percent of M&As are unsuccessful, so why do so many fail? Here are six mistakes to avoid when considering such a huge step.
- Remaining ignorant
The old epithet ‘ignorance is bliss’ sadly doesn’t apply in this situation. In fact, the more you can find out about the other business in advance, the better. Commercially sensitive information can’t be exchanged, but there’s plenty of information that can be found prior to day one – enough to keep your legal team and tax accountants busy for weeks. Don’t waste time waiting for the regulatory authorities to give you clearance – find out what legally permissible facts you can in the interim.
- Insufficient resourcing
The team requirements for M&A are often underestimated. Freeing up people to form part of your integration team can take months, depending on their role and whether temps need to be found to cover their work. Many companies begin this process too late and aren’t ready to hit the ground running when the deal is complete.
- Poor communication
CEOs and directors often forget that M&A deals have a big impact on staff. There may be worries and rumours circulating of redundancies or management changes, and these are best handled by providing transparent messages on a regular basis. Be clear on why the merger or acquisition is taking place and what it means for your employees, and be available to address any queries or concerns that arise.
- Lack of courage
The thing about an M&A deal is that someone has to step up and take responsibility for the difficult decisions. Sometimes, moves have to be made that disappoint people – whether that be the staff or the shareholders – but they need to be made nonetheless. Making such decisions in a timely manner and with clarity and honesty may be painful in the short term, but it gives those who don’t find the direction your business is taking appealing chance to move on.
- Weak leadership
In many respects this is related to the need to have courage. A successful deal needs a strong leader in whom the employees and board can place their trust. It needs someone willing to dig that bit further, stand their ground when necessary, and communicate effectively. Appointing someone who isn’t up to the job can result in dramatic failure.
- A poor strategy
A poor strategy is just as likely to threaten the success of an M&A deal as is the appointment of the wrong people or inadequate due diligence. Before entering a deal, decide what constitutes success, both within the first year and longer term. Then plan your strategy accordingly and review it regularly to ensure everything is on track.