Some of the Reasons Why Acquisitions and Mergers Fail

| February 12, 2014

queenGetting acquisitions and mergers right is a complicated business. Having been part of companies when they have undergone acquisitions and also seen failed deals taking place I can appreciate the myriad of issues which need to be resolved and hurdles which need to be jumped. The reasons for failure always seem to fall into the same categories though.

Lack of a Common Vision:

You are merging two probably very different and independent companies. To do this successfully requires a certain level of vision. The new ownership will need to be able to understand exactly how they see the company working once the acquisition has been completed. Failure to do so means that from day one there will be problems in achieving any goals as they have not been formulated and understood. There needs to be a clear and concise understanding of how the new company will operate, what it will feel like and how it will be different to the existing two companies.

Badly Done Due Diligence:

The more information and understanding that can be obtained during the due diligence phase the better. Unfortunately, all too many deals fail to deliver on this because from the outset a good team is not formed. Getting together people from all areas of the business and seeking good advice from relevant professional external bodies, for example a Healthcare Investment Bank in cases where the acquisition requires a healthcare specialist, or a specialist corporate lawyer, can make all the difference. A badly formed team leads to the other problems affecting due diligence such as lack of communication and bad project management. To make the process effective, sound decision making processes and clarity are needed, along with a specific line of responsibility so that issues can be resolved with haste.

Loss of Purpose:

When an acquisition or merger is warranted, it is for a specific reason. This might be because the book of customers is required, or for technological reasons. There is always a benefit to the joining of the two companies. The trick is not to lose sight of this. If the original benefit is lost along the way by bad management of the deal, then the completed deal serves no purpose. Always make sure that whatever was the original objective remains intact.

Poor Communication

Quite often, it is seen that messages conveyed to the audience are not relevant for them and they keep hovering in the initial stage. In such a scenario, employees tend to find a suitable answer to a lot of questions like –

  • What is the organization merging
  • Why merging is regarded as the best course of action for the company
  • How will company’s working improve for the better after merging
  • What will be the realm effect of the merger upon the working of the organization
  • What kind of support can they expect from the merger in times of adverse situations

Thus, if the message is not commuted rightly, acquisition and merging cannot come to any use.

Weak Leadership

Merging two companies is a hard task. It’s like sailing in a stormy night when you need one strong captain who is enthusiastic, reliable and has clarity and good communication skill. Senior managers should have the capability to let their energy flow into the employees. Only then can the working of the two companies function properly.

Always remember what it is that caused the desire for the deal in the first place. It is easy to lose sight of things when everything starts to snowball. The best way to do this is through common sense and planning. It gets you a long way.

Image attributed to Serge Bertasius Photography

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Category: Business

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