Few acquirers learn from their mistakes
If you read the merger and acquisition literature then you will soon discover that it is mostly about mega mergers; corporations of 20,000 employees merging with others of 15,000 employees. What is also clear is that this mostly ends up in some form of disaster where the original benefits are either not achieved or only achieved after considerable time and, usually, at a return on investment well below the target. Then there are those mergers which are a complete failure and end up demerging in order to protect whatever value is left. This is a minefield and not for the feint at heart.
Acquisitions are a very specialized activity
While the potential problems are numerous, acquirers tend to make the same major mistakes. They fail to take into account the level of systems and processes that need to be reengineered and fail to recognize the massive problems involved in merging cultures. While systems and processes can be fixed with enough time and money, there are cultural issues which simply cannot be overcome just by throwing resources at the problem.
We tend to forget that businesses develop over time in a somewhat random manner. Systems are cobbled together to overcome short term problems and end up becoming part of the fabric of the firm. Over time, new systems are layered on top of those and one off systems are developed to link all these disparate bits together. Buried in this mountain are also systems to manage activities which are unique to the way in which the business works. While two businesses may look the same from the outside, there may be countless differences at the transaction and decision making level. So when it comes to merging operations, not only do systems not look the same, they don’t work the same and often the underlying data is defined in an incompatible manner. What looked like a simple merger operation now takes on the size of a mountain. Of course, many corporations exacerbate the problem by merging too many systems, aiming for a one-size-fits-all when in fact they could have just as well left it alone.
Most acquisitions have a winner and a loser – a recipe for problems
The major problem of merged operations is, however, cultural mismatches. Just because you are in the same business does not mean that you think alike, operate the same way or have the same set of corporate values. While some people are able and willing to change to a different way of operating, some are simply resistant. This gets even more problematic when underlying ethical values are different. Even some differences in culture can take a long time to change, often with a loss of some employees. When those differences are significant, there is little chance that making everyone the same is going to be quick, inexpensive or without the loss of a large number of staff.
We too often forget the basic rule of business – if it is not broken, don’t fix it. Far too often mergers have failed through over-integration. Basically, if you don’t have extensive experience of putting together two different business units, then you should think long and hard about your acquisition strategy. If you do need to bring units together, then perhaps a different business structure which keeps units operating with loose connections may achieve 90% of the benefits but avoid 90% of the headaches.
