Why Mergers & Acquisitions Fail
Mergers and acquisitions (M&As) have been the number one growth strategy for corporations worldwide for the past 45 years. The Harvard Business Review states that companies spend over $2 trillion on acquisitions annually. Despite their popularity, most of the mergers and acquisitions deals will not live up to expectations.
These deals are expensive and labor-intensive undertakings that, if handled incorrectly, can be very costly and unforgiving to both parties involved. It’s estimated that 70%-90% of all acquisitions fail and are ultimately a waste of time and money for everyone involved. The International Association of Business Communicators (IABC) takes this one step further by reporting that in 66% of deals, the acquiring company would actually have earned more had they taken the same money they invested in the acquisition and put it in a bank certificate of deposit instead.
Beat the Odds: Avoid These Communication Mistakes
M&A experts from around the globe have researched the relationship between M&A success and intercompany communication extensively. These experts have determined four communication mistakes that are common contributors to the historically high failure rate of M&As. If a merger or acquisition fails, chances are at least one of these communication mistakes had a role in its downfall:
- Poor integration and lack of good consistent information across all parties.
- Communicating too little or too much with little regard to the M&A motives.
- Relying solely on formal communication vehicles.
- Underestimating the cultural differences between the two companies involved.
The Best Level of Communication Formality
So, which communication tools work the best?
While more formal methods such as holding large group meetings and distributing newsletters are the most popular, research indicates no direct correlation with the success of the deal. The methods that do correlate to positive acquisition outcomes are informal:
- Management by walking around
- Small one-on-one meetings
- Cross-divisional training of managers
- Informal interaction among employees
Formal communication tactics are still important, but when companies have a high degree of informal, face-to-face communication taking place, the formal materials become far more credible and useful to employees.
The Two Types of Acquisitions
There’s no “cookie-cutter solution” for a successful M&A. Similarly, no two M&As are alike. The industry, company size, team culture, and more all impact the merger and acquisition process. For example, not all mergers and acquisitions require the same level of integration. Among the deals taking place today, 15%-25% don’t require much integration because the merging units are dissimilar and there’s no strategic value in consolidating them.
Ideally, the amount of post-merger communication should be dictated by the motive behind the deal. Depending on the deal’s characteristics, there are two basic acquisition motives that will dictate how to communicate, and as a result, have a successful M&A:
- Acquiring for financial synergy
- Acquiring for operational synergy
1. Acquisitions for Financial Synergy
Acquisitions for financial synergy is a strategy that combines the financial muscle of the two companies involved. Oftentimes there isn’t a strategic advantage to integrating cultures with acquisitions for financial synergy. Both companies will perform better if the parent company’s communication and control mechanisms are kept to a minimum.
Companies in this situation often err by over-communicating.
2. Acquisitions for Operational Synergy
M&As for the purpose of achieving operational synergy involves combining the unique core competencies of each organization for the purpose of making processes more efficient. Acquisitions for operating synergy often depend on cohesive efforts. Success is dependent upon establishing strong centralized communication and management controls.
Companies in this situation often err by under-communicating.
Addressing Cultural Differences With a Culture Audit
Where cultural differences exist, poor communication can create a rift or worsen a clash of cultures. For example, telling a small and agile company that they need to conform to corporate processes that are totally alien to their culture might negatively impact success. I frequently conduct culture audits for clients that need a deeper understanding of how two cultures will interact. You can avoid cultural friction between companies by:
- Identify areas of weakness or places where communication efforts need to be emphasized as the deal goes forward.
- Respecting cultural icons, such as stories about the company’s founders or other examples of heritage.
- Adapting to cultural symbols like the formality or informality levels displayed by management. (i.e., presence or absence of hierarchy; dress code).
A Real-World Example: Empowerment After Acquisition
The former founder and CEO of Jet.com, Marc Lore, published a controversial article on LinkedIn called Empowerment after Acquisition. He explained how Wal-Mart is managing the acquisition of leading outdoor retailer Moosejaw. Some people may be surprised by the unusual steps he’s taking to maintain Moosejaw’s culture.
Underestimating or devaluing cultural differences can stifle productivity and negatively affect success. In his article, Lore explains that it’s not easy for a CEO to maintain the acquired company’s culture. He wrote:
“If you simply tell them ‘keep doing what you’ve been doing,’ you take away the exciting part of their careers – the part where they face new challenges and experience the sense of accomplishment that comes with finding inventive solutions. Instead, that’s inadvertently replaced with a series of subtle limitations. Their future is no longer an open road – it’s a side road that can’t access the thrill of the highway.”
His solution was to give the Moosejaw leadership team more responsibilities and opportunities, and even greater challenges.
Strategies for Successful Mergers & Acquisitions
I’ve developed a set of strategies from my 20+ years of experience working with leaders during M&As. If there’s one thing that every M&A has in common, it’s this: If there isn’t any single, strong source of information about the deal and how it’s put into action, then the M&A is destined for failure.
When an M&A is on the horizon, incorporate these leadership tips and recommendations into your communication game plan:
- Ensure top-down communication—work with executives to define key messages and use them as a basis for every verbal and written communication (modify as the deal progresses).
- Author the public announcement first using the agreed-upon key messages and then build all the internal communications pieces from there.
- Establish a cross-functional team to ensure public, employee, customer, and vendor communications are consistent throughout.
- Balance communication efforts between day-one activities (when the deal is announced) and post-close activities (when employees need to know how their day-to-day will change).
- Remember that communication can do two things for you: change perceptions and change behaviors. If acquired or existing employees are leery of any change, your communications efforts are even more crucial.
- Transparency is key. Avoid conducting too many closed-door meetings. They breed speculation and reduce productivity.
- Carefully evaluate the frequency of communications—cultural differences dictate that we communicate less, but integration level dictates that we communicate more.
- Establish specific opportunities for fostering informal communication—document in the communication plan.
- Create and use one communication vehicle where all messages are shared (ideally sourced from the same sender or at least written from the same voice).
Guarantee M&A Success With Professional Guidance
Seek professional communication counsel to manage workplace transitions such as acquisitions, leadership changes, or restructurings. There isn’t a consistent formula that you can follow that will guarantee success.
For acquisitions, the amount and type of communications required will depend on the acquisition motive. For situations where cultural differences exist, employee audits should be conducted to identify weaknesses, opportunities, and cultural symbols. And above all, clear, consistent top-down communication is required throughout the entire process. M&As are a tough undertaking that needs to be done right the first time. If you want assistance with preparing for a future merger or acquisition or need help with one currently in progress, contact TruPerception today. You’ll get a communications expert in your corner that has real-world experience with M&As at companies of all sizes, including Fortune 500’s.