Make Your Merger a Transformation, Not Just a Transfer

Many mergers and acquisitions fail, and by “many” we mean between 70 and 90 percent.

Only 10 percent of M&A transactions achieve their full strategic objectives, and over 60 percent, according to the Harvard Business Review, actually destroy shareholder value with integration problems, culture clash, and lack of trust being cited as the foremost culprits.

People don’t take the risks of M&A deals to perform worse; people don’t do anything to perform worse. The reality is sobering, especially when integration problems in complementary businesses go against the expectations of this kind of deal.

Additionally, historically speaking, M&A activities peak before economic downturns, with records having been set in 1999, 2007, and 2015. In 2015 alone, consolidations passed the $3 trillion dollar mark before the year had even ended. In the larger context of your M&A deal, there’s good reason to exercise an abundance of caution to ensure that the new entity survives incoming poor economic weather.

These deals have always been transactional in nature, pursued for economies of scale and cost consolidation. These deals have been a viable source of growth for more than a century, and, on average, companies spend more than $2 trillion every year.

That’s about 20 times the worth of the entire commercial banking industry in the United States.

A fail rate of 70 to 90 percent costing the sum of the ten largest industries in the United States combined is devastating.

Successful integration goes beyond merely combining operations; it requires ensuring that customers and employees alike see value in the new combination and feel bolstered by the change. Merely colliding two entities together based on clinical-feeling factors like roles and hierarchies is a way to transfer power, but remembering the human element is how you transform through a merger or acquisition.

Start planning early.

Having a clear plan of action for integration should begin in the due diligence phase… well before the deal closes. This allows both parties to confirm their ability to integrate in a way that maximizes value creation, start building a meaningful relationship and thesis between both entities, and move quickly once the deal is announced.

Everyone involved should be thinking from both sides of the table. The integration strategy should outline goals and objectives, timelines, responsibilities for both organizations, and how the integration will– once again– create value.

Value creation ensures that the integration process is aligned with and driven by strategic intent, maximizing the potential of the deal. Integration is not a generic checklist, and it will look different every time.

Pay close attention to the cultural alignment between the organizations. One culture may prevail over the other, both may clash, or both may fizzle out allowing a new hybrid one to emerge. Be prepared for any of the three. Business owners can prepare themselves and their employees for this by conducting cultural assessments, developing and communicating cultural integration plans, and providing training to employees on new processes and expectations.

Communication shows trust, and almost everything should be transparent.

Communication should be frequent, transparent, and two-sided with employees, shareholders, and customers. This can look like regular updates on the process or readily-available information about the changes to come and when to expect them.

The sooner a company has a plan in place, the easier it will be to answer these questions when they come up. And they will come up quickly and in rapid succession. It will look much better to have answers ready than to have to “get back to that” on everything. Fatigue from constantly-unresolved questions is real, and it will affect everyone involved. Which leads us to our next point…

Value creation also means value retention.

By establishing dedicated integration teams with representatives from both parties to communicate progress and tackle issues as they arise (and before they fester), the entire M&A will feel more comfortable, seamless, and natural. And if it feels natural, fewer feathers will be ruffled about just what is going behind the curtain.

People are curious, and they’re generally also anxious as a form of self-preservation. Humans didn’t come this far by blindly trusting the unknown. It’s part of our evolution to care and to notice changes that we can’t quite feel cozy about.

Keeping the momentum strong and the communication open reduces any turbulence current employees and customers feel during major changes. If the process doesn’t look clunky, then they can likely assume there are no bumps. At least, there are no bumps that affect them.

Disruptions to revenue growth or customer relations or operational continuity will startle the flock. To retain key employees and customers, they need to know what is going on, when, and what is happening next.

Even if there is a snag, let them know how it will be fixed. The relief of knowing a problem has an end is universal. People will appreciate that, and more of them will stick around through it if you put in the work to keep them there.

Communication is a form of value creation that breeds value retention. In showing that you care enough to let people peer through the looking glass at your M&A, you also show that you care about them. You included them. You talked to them and listened to them.

People stay where they feel cared for. They’ll likely also view the company’s health as being stronger if they see it prevailing through complex adjustments.

Measuring your metrics of success doesn’t have to be difficult.

You can measure the success of your own merger/acquisition by looking at key metrics. Here are some ideas to look at the human-focused successes you can gauge throughout the process:

1. How is your revenue growth?
2. How are customer satisfaction scores?
3. What about customer retention rates?
4. Are there any complaints from clients or employees?
5. Are you retaining key talent?
6. What scores are your employees giving when asked about the deal?
7. Are your productivity measures suffering?
8. How much time does it take to achieve integration milestones?
9. How is shareholder return compared to industry peers?
10. Are the costs of previous problems pre-merger going away?

This list is not exhaustive, but it is a great place to start. The most successful integrations go beyond just combining operations to catalyze broader transformation and outperformance compared to industry peers. Tracking a comprehensive set of metrics allows you to gain a holistic view of integration success, particularly in the human-focused areas that affect reputation and can create future costs if neglected.

If this sounds overwhelming, consider external guidance.

It’s okay not to be okay! Take a deep breath and remember that you’re not the first– or the last– to go through this process. That means that you don’t have to know all the answers or manage everything by yourself. Seek out the people who have experience handling this situation, and either let them take your hand or let them take one of the reins.

Outside consultants like Workplace Harmony can provide first-hand accounts, best practices from numerous transactions, objective perspectives on integration challenges (it’s always easiest when you’re not directly involved), additional resources to support the integration process, and maybe a few funny stories to ease your mind.

Experts can bring deep knowledge that most companies lack internally. They can help with deal structuring, due diligence, integration planning, and more. The cost of hiring someone for guidance is a steal compared to what you could lose in legal, financial, and operational risks. That objectivity, expertise, and emotional management can help business owners keep a human focus.

Feel free to chat with us about how we can provide that type of support to your M&A deal. We’re just as excited to help you take apart a problem as we are to see you create something new and amazing.

email: [email protected]

#mergersandacquisitions #businesstransformation #integrationstrategy #valuecreation #WorkplaceHarmony #culturalintegration #consulting #leadershipinmergers #businesscommunication #mergersuccess #employeeretention #customersatisfaction #businessgrowth