Did you ever wonder why the mergers and acquisitions over the last two decades rarely produced the anticipated value? The reasons for the merger or acquisition seemed sound: a company wants to expand its footprint, add a product or service to complete its portfolio, or bring needed skills and competencies to the business. Sometimes, companies buy revenue and customers.
But then, the intended results don’t happen. The companies are expecting that 1+1 will equal 3. Often, what really happens is that 1+1 equals -1. It doesn’t add up – they’ve lost value instead of adding value.
So what goes wrong? Fifteen years ago, I asked a Columbia MBA and an ethnographer to research this dilemma and come back to me with an answer.
They interviewed and observed a diverse group of companies that were part of a merger or acquisition. At the completion of the project they produced a white paper entitled “The Post Acquisition Blues.”
The paper highlighted the three big reasons most mergers and acquisitions fail to deliver the growth and ROI each company was seeking. The interesting fact was that these were the same reasons marriages and significant relationships fail:
- Loss of identity
- Lack of intimacy
- Financial pressure
Loss of identity was defined as – we came to this relationship with a culture, a brand, a personality and independence. They were attracted to us and liked what they saw. Now they don’t want us. They want us to become just like they are.
Lack of intimacy was expressed as being excluded – the sense of being on the outside looking in, also known as, the “we/they” syndrome: “We’re the outsiders and they’re the insiders.” “We feel like we’re being shut out of what’s going on.”
Financial pressure was explained in a variety of ways. Several companies spoke about the burden of being placed under the acquiring company’s infrastructure, which, in most cases, was not affordable. Others felt pressure to produce revenue over unrealistic timelines at double and triple the level they were delivering as a stand-alone company.
The interesting tidbit here is that if the identity was respected and preserved and the sense of belonging and being an integral part of the community was in place, the financial issues could be worked out. On the flip side, if the identity and the intimacy were compromised, the financial pressure was the straw that broke the camel’s back.
Most companies go through a thorough due diligence (or so they think they do) of the other company’s assets. Few due diligence inquiries consider the culture and operating environment of the soon-to-be merged or acquired company. That’s where it all falls apart!
Every company, large and small, has a DNA that flows from culture to client/customers.
What needs to be a part of every merger and acquisition due diligence are the softer skills, not simply the financials. Here’s my list for what needs to be assessed anytime you are looking to acquire or merge with another company:
- Culture: How we do things around here/how they do things around there
- Talent: Who we have/who they have
- Capabilities: What we’re good at/what they’re good at
- Market Value: What we’re known for/what they’re known for
- Customers/clients: Who we do business with/who they do business with
Companies want the customers, market value, and capabilities. They may even want the talent – just not the people who have the talent – and we kind of “hate” the way they do things.
So, the culture that attracted the talent that got the customers that produced the market value and have the capabilities we need is persona non grata.
I know it sounds ridiculous when you read it, but I can’t tell you how many people nod their heads when this phenomenon is pointed out.
You have to be able to see how it will all work together – the talent and the culture as well as the financials, the customers, and the market value. If the value comes from the talent, then you must find a way to integrate their culture, which is what attracted their talent in the first place. After all, the talent and the culture are what got that company to where it is – and that’s why you want it!
You can follow her on twitter @rosefass.