The first nine months of 2018 saw record-breaking M&A activity of $3.3 trillion--yet months or years later, many of these deals will fall short of expectations. One classic KPMG study found that 83 percent of mergers fail to boost shareholders' returns.
Mergers and acquisitions are always a perilous situation for all parties involved, yet businesses continue to believe that the potential upsides are worth the risks. The good news is that by applying foresight and taking proactive steps, you'll be much more likely to have a successful merger.
In this blog post, we'll give a quick rundown of the challenges that businesses face during and after M&A activity--and how you can overcome them.
1. Cultural conflicts
Mergers involve combining two highly complex systems into a single system that's even more complex. Although some degree of conflict is inevitable, far too many organizations don't take the time to understand each company's culture, which creates issues where they don't need to be.
According to a 2018 study by Grant Thornton, only 17 percent of executives believed that they had made "strong" efforts to integrate both companies' people and cultures during a merger.
To avoid these problems and manage expectations, transparency and honest communication from executives and key stakeholders are essential. Find ways to engage people and bring them together throughout the process.
2. Unrealistic expectations
It's easy for senior executives to get excited and invested in a deal--after all, you want the merger and post-merger period to go well. Unfortunately, too much hype can cause stakeholders to set business objectives that are simply unattainable as a result.
Failing to meet these lofty targets won't just cause executives to lose credibility; it also demotivates employees and disappoints the board of directors. In order to keep momentum going and keep your feet on the ground, reassess your goals and expectations at constant intervals throughout the process.
3. Not enough resources
A merger is one of the most important actions that your business will ever take--it's a sink-or-swim activity. Given this importance, it's surprising that many organizations don't devote enough time or resources to perform a successful integration.
Select a senior-level executive who's capable of overseeing all aspects of the merger. This person must consider how the merger will impact a variety of domains: IT, finance, human resources, sales and marketing, etc. In addition, your legal team will need to carefully examine the fine print of the deal to make sure that you aren't incurring any risks or breaking any agreements.
The conclusion is simple: if you can't devote the resources you need to pull off the merger successfully, then you can't afford to perform the merger in the first place.
4. Postponing hard choices
The dirty little secret about many mergers and acquisitions is that they often lead to layoffs sooner rather than later. Initiatives to create "synergy" often focus on shedding the new business of its duplicate employees, including managers and executives. According to Business Insider, "synergy is what you get when you eliminate redundancies in your efforts to cut costs."
If streamlining your personnel is in the cards, you should decide on and communicate this fact to all staff members at the beginning of the merger. In order to minimize the disruption to your business, cuts should happen as soon as possible when the organization is still in a state of flux and transition.