Too many M&As fail due to poor integration.
And this is not something new.
Back in 2011, Harvard Business Review published some staggering data that showed 70% of mergers failed to deliver value. Almost 10 years later, another survey from PwC shows that the failure rate is still the same.
Let’s put these numbers into context. 70% failure rate in a trillion-dollar industry means an incredible amount of money wasted.
In the new episode of “The World Class Leaders Show”, I invited my good friend Branka Dessens, a post-M&A integration consultant and together we shared our personal experiences and perspectives about why M&A integrations fail and what to do about it.
Some organizations became very successful through M&As by learning how to merge and integrate. They developed a very aggressive buy-and-build strategy that allow them to acquire 20 to 30 companies per year.
Others tried once or twice but then they failed and decided to step back. They initially thought that was easy but then realized that integrating businesses is not easy.
In our experience, there are three main success factors to make a post-M&A integration successful:
1. Assess the Cultural fit
The cultural fit between the parties that are merging is one of the most underestimated factors for success.
We have all seen some epic failures of large M&As due to a lack of cultural fit. Unfortunately, these companies realized this huge issue when it was too late.
How can you assess the cultural fit?
First, it has to be done during the due diligence process which many companies don’t tend to do. Then, you can use different approaches.
One way to assess culture is by having interviews or questionnaires with both companies to understand how they operate, think, and see risks. By doing so, you can already start to design your integration plan.
Another way is to pay more attention to the media. CEOs and other Senior Executives are often interviewed or speak at events. Just by listening to what they say about their organization, you can easily assume what the company culture is.
In other words, they tend to leave some clues. Your job is to find them. It’s really like acting as an anthropologist.
Finally, make sure you build a specific cultural integration plan along with all other plans because you’ll need that during execution.
2. Choose the level of Integration
Do you want to take over? Do you want to enforce your processes on the other company? Or do you want to have a light integration?
It depends on the type of acquisition you’re planning to make and what you want to get out of it. This decision defines at what level you need to integrate. To give an example, if you make an acquisition because you want to consolidate in the market, then you’re often looking at a very heavy integration because then you want to integrate all functional areas.
On the other hand, if you integrate too much, it actually costs you too much. Imagine getting everybody on the same ERP system. You know it’s a big project, it’s a lot of money. But will it drive growth?
Sometimes you don’t want to integrate too much either. But if you don’t integrate enough, you lose money, because you lose potential synergies. So you really need to find a fine balance between one and the other.
As a practical step, define all potential activities/systems you want to integrate, and for each of these activities, make an assessment of the value that integration will make to the business. And then prioritize instead of launching all integrations at the same time.
3. It’s all about Execution
It all starts with a plan. If there is no integration plan linked to your acquisition strategy, the chance of failing is very high.
But a good plan is not enough. We often see companies not giving enough resources to the integration because there’s no more money, no budget, or the right people available anymore.
Another reason that makes the execution difficult is that many people across functions are generally involved in M&As. These managers and leaders still have their day job and responsibilities. There is not often a dedicated M&A team unless it’s a large company that is used to growing by acquisitions.
In this scenario, there are often competing priorities going on, so it’s difficult to align people to work together on the same goal.
The best way to avoid silos is by aligning people first to the vision of the company and why the M&A matters. It’s never too late to have these conversations internally because they often lead to a boost of motivation, re-engagement, and performance.
Finally, as with any other change initiative, it’s critical to have open and transparent communication about the M&A. Mergers normally bring stress, fear, and disappointments.
I hope you find these three factors insightful and actionable.
M&A is a wonderful strategy to grow a business but it can be risky if the integration fails.
Listen to the podcast related to this article: https://www.andreapetrone.com/three-drivers-to-make-ma-integration-successful-with-branka-dessens-podcast/