How To Avoid The Three Main Derailers Of Merger And Acquisitions’ Success

Some hear merger and acquisition. Some hear Scylla and Charybdis. Either way, most are lured to their death or destruction. While the lure of the sirens has been a myth, we know that 83% of mergers and acquisitions fail to add value. And we know why. They fail because of poor strategic focus, poor cultural integration, and/or poor synergy delivery. Unfortunately, avoiding these sirens takes more than just earwax. It requires a conscious and detailed effort.

Strategic direction

How many times have you heard someone say that mergers and acquisitions is one of their growth strategies? But mergers and acquisitions are not strategies. They enable a different strategy.

Strategy is about creating and allocating resources in the right place, in the right way, at the right time, and over time to overcome obstacles and deliver what matters. That is, there is a wrong place, a wrong time, and a wrong way. So strategy is about fundamental decisions about where to play and how to win. And at the heart of how to win is the core focus of an organization.

Michael Porter points out that almost every value chain includes design/invention, production, delivery, and customer service/experience, in addition to marketing and sales. Your single overarching strategy should show the right way to build and leverage differentially valuable competitive advantages in any of the top four, as well as marketing and sales – which every business needs to do in one way or another.

This core strategic focus feeds into strategic priorities supported by enablers and capabilities. For example:

• Apple wins with prevailing draft and technological innovation. His business is a marketing tool.
• coke wins with an overweight production system, based on its physical assets, cooperated with its bottlers’ dominant distribution system.
• Walmart wins with a predominant product range/delivery infrastructure.
• Ritz Carleton wins with mostly human-based service/ Guest Experience.

The 17% of mergers and acquisitions that create value generally enable a strategy already in place. Apple should do mergers and acquisitions that will further enable the design. Cola should focus on production. Walmart should focus on product supply or delivery. The Ritz-Carleton should focus on the guest experience. And you should focus on mergers and acquisitions that enable your core focus.

cultural integration

How many times have you heard someone say they will acquire another business and run it as a separate entity to maintain the strengths they have acquired? Too much time. Almost by definition, you cannot reap the synergistic benefits of a merger or acquisition if you keep them separate. It cannot activate your core focus separately. You need to bring them together and integrate them.

You have three options. 1) Adapt your people to your culture. 2) Adapt your people to their culture. 3) Combine the two into a brand new culture. The first two choices are painful for the people giving up their inheritance. Many of them will not make the transition and will leave one way or another. The last is the most complicated. In any case, the culture must be aligned with the core focus:

Deliver synergies

All too often, “synergy” is a euphemism for “cost savings.” To be fair, cost savings are an important way to free up funds for other investments. However, key synergies combine complementary strengths to enable strategic priorities.

Check out Disney’s acquisition of Pixar. They didn’t care about cost savings. They bought Pixar a) to use its technology in all of its animation and b) to gain new leadership for Disney Animation. They then screwed others onto the new, strengthened platform to gain access to other characters and distribution channels with their acquisitions of Marvel and then Lucas Films/Star Wars and then Fox.

The right M&A mindset

None of this is easy. Thinking is complex. The required implementation and change management is complex. When considering future mergers and acquisitions, consider the following:

1. The strategic focus. Make sure you are clear on what your primary focus is and how the merger or acquisition objective supports your strategic priorities.
2. The cultural integration. Yes, Virginia, you must integrate your acquisitions. Have a tendency to choose one culture or another and assimilate everything in it.
3. deliver synergies. Yes. Cost savings are important. And look for the complementary synergies consistent with your strategic focus and new, combined culture. Yes. All three ideas are integrated – just like your mergers and acquisitions.

click here for a list of my Forbes articles (of which this is #786) and a synopsis of my book, The Merger & Acquisition Leader’s Playbook