Study after study puts the failure rate of mergers and acquisitions between 70% and 90%. Even when they don’t fail outright, they too often fail to delight. What steps can leaders take to make sure they don’t join the ranks of disappointing statistics? It all starts with communication—before, during, and after the deal:
1. Communicate the strategic fit.
In any strategic initiative, the company should not concede its strategic principle—the power that exists at the intersection of distinction, passion, and profitability. This strategic principle explains why customers choose your products or service, why you make money at what you do, and why people want to work for your organization. It forms the foundation of your competitive advantage, the area that exerts the greatest influence on your business. When you consider a merger or acquisition, clearly communicate the direction and the reason for the initiative.
2. Answer the question no one is asking.
“Why should we do this?” Recent history has taught some hard lessons about M & A’s—one of the most salient being that many, if not most acquisitions should never have happened. Once people have the answer to this “Why?” question, they will better understand all the tactics and activities that will support it. If you can agree about what success looks like, you will take steps in allocating resources, forcing the trade-offs, and killing the sacred cows—yours and those of your target.
3. Be realistic about possible synergies
Can you justify, in detail, what you hope this deal will achieve? What confirmation will you need to see? And what evidence suggests the synergy will occur? You can measure and quantify things like cost reduction, but sales growth synergies will be much harder to calculate and achieve. But start by communicating what you’re looking for.
4. Don’t forget to mention your best customers.
Does the integration plan cater to customers in detail? Acquirers fall easily into the trap of focusing so heavily on internal reorganization that they ignore customers at the most critical time. Has the parent considered benefits for the customer? In the heat of finalizing the deal, integration of customers is often left until the last minute or ignored entirely. Or, it’s all done but not communicated to stakeholders. Any combination of these can move you into the danger zone.
5. Remember the importance of culture.
Some authors refer to “incompatible business models” undermining a deal, but what does that really suggest? It means that when companies make money in vastly different ways, doing extremely different things, and no one recognizes or addresses these differences, the merged company risks destabilization. Decision-makers should ask about the company’s Critical Five Factors:
How do they make money?
Who are their best customers?
What value do they provide them?
How do they do that?
What threats and opportunities might alter these in the future?
I find that too often the leaders of the company trying to make a decision about whether to acquire can’t answer these questions for their own company, so certainly they don’t think to ask about another company’s Critical Five Factors.
No matter what the facts tell you, don’t assume the sanctity of all integration. Consider emotion too—yours, your employees’, and your customers’. Who in Chicago will soon forget Macy’s demanding the name change of Marshall Field’s in 2006, compromising a brand name that has stood for excellence in Chicago since 1881? Too often the acquiring company insists on improving things, replacing things, and renaming things that didn’t need to change in the first place.