The biggest M&A integration mistakes (and how to avoid them)

2021 has been an extraordinary year for M&As.

According to PwC, we have seen more than 62,000 deals, which is 24% more than in 2020. And we expect the same growth in 2022.

But as the failure rate of M&A deals is still pretty high, leaders should pay more attention to their integration processes.

I get involved very often in post-M&A integrations and I keep seeing the same problems across regions and industries. In this article, I share three big lessons I learned from my work during and after M&A deals.

1.Why company cultures matter

Culture is a set of norms and behaviors that are promoted and accepted, often implicitly, in the organization. They define how companies work.

However, there is no booklet or guideline for culture, which makes culture difficult to assess during the due diligence process. At least if you use the same metrics you use for other business areas.

This often leads to risky assumptions from leaders about culture when companies merge. 

For all of these reasons, many leaders forget culture during the deal. Their only focus is the strategic, financial, and operational fit between the two companies.

Let me bring a big story that hit the news a few years ago. 

In 2017, Amazon acquired Whole Foods in a mega $14 billion deal.

The acquisition was strategically perfect, but people in these two companies understood very quickly the huge cultural differences between them. Just one year later, people cried and left because they couldn’t deal with the chaos.

What happened was that Jeff Bezos, and John Mackey – the two CEOs – had very different, almost opposite leadership styles.

As a result, one culture – Amazon – was rigid, tight, and overly structured. While the other – Whole Foods – was loose, bottom-up, and more flexible.

The integration failure was very predictable but because no one did a cultural assessment before the deal, they opened their doors to a disaster.

So, during the due diligence process, I recommend implementing these strategies:

  • Build an expedition of “anthropologists”. I’m not talking about academics or scientists, but employees or external advisors/coaches who have only the objective to assess the culture of the company you want to acquire
  • Develop a proper cultural assessment plan and discuss findings internally. Don’t underestimate the negative things you may find.
  • Look at the media, interviews, and articles about the target company. Leaders do often leave clues about their culture. Your job is to find them

So don’t wait until it’s too late because it becomes very difficult to work together as unfortunately happened to Amazon and Whole Foods.

2.How to build a new company identity after the deal

Often, as a result of a new M&A, you create a new entity that does require a new identity. Everyone agrees on that, but “how to do it” is often open to interpretation. 

In my experience, three elements form a new identity and the follow a sequence:

  • Purpose
  • Values
  • Behaviors

Purpose is the starting point of creating an identity but many leaders get it wrong. It’s why you work together and why your work matters to people.

However, it is seen often from a business standpoint. Typical sentences I hear “We merged because we see an opportunity, new trends, or a gap in the market”.

This is absolutely a great reason for an M&A but it’s not the purpose of the new entity you create. Business reasons won’t kick in motivation and engagement as much as a deeper WHY people do what they do.

When it comes to values, I do believe the corporate values of the company that is acquiring another company shouldn’t be dominant in the relationship. 

You want to create a new organization/team that is aligned with the corporate values of the two companies, but the new entity should build its own set of values. Here’s why.

Most of the time, the new company or division created after M&A, does require a different approach and strategy in the market which might be difficult to implement by reinforcing the traditional values of both organizations. 

Besides, values drive behaviors.

So I strongly recommend talking about these three elements early in the process.

3.Driving engagement top-down

When you do M&As, there is always a big fear of change. The fear brings uncertainty which drives engagement down.

This is risky, as you need to engage with everyone in the organization to make the merger successful.

Besides following the steps mentioned above – point 2 – my first advice is to make sure you don’t stop the integration at the top leadership level. You can stay there when you design the vision for change and the integration but then you need to deep down through the vertical chain to drive the new behaviors that are required to make the M&A effective.

The second piece of advice is about setting clear goals. I read recently that lack of clear goals is the number three reason why M&As fail. That’s what I’ve seen too. Too many assumptions about where the organization is heading vs clear expectations on objectives to achieve together post-merger.

Third, don’t underestimate the importance of planning the new strategy together. 99% of the time an M&A requires a new strategy to implement – new positioning, new products or services, new markets, etc. – which represents an incredible opportunity for leaders to involve more people across the two companies in setting new priorities. Along the process, remember to involve people in the front line who sees the business (and what the client wants) with a different lens.

Finally, while you put all together and develop your plans, take the opportunity to give ownership for the implementation to a team of business champions (not top leaders) who can keep the momentum going and drive themselves engagement across all other levels and divisions of the new organization.

The real challenge is to provide accountability and support to the team during the implementation as the standard operations and the day-to-day can slow down these changes. A coach can be very useful in these circumstances.

I believe M&As are a fantastic way to grow a business. Unfortunately, many fail for these reasons.

What has been your personal experience with M&As?

Listen to the podcast related to this article: https://www.andreapetrone.com/the-biggest-ma-integration-mistakes-and-how-to-avoid-them-podcast/

 

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