Why Mergers and Acquisitions Fail | Jobs In MD

Why Mergers and Acquisitions Fail

By: Gerri King

When mergers and acquisitions fail, the event is often marked by surprise and shock. "The numbers worked, the market seemed ready, and the products were compatible. So what could possibly have gone wrong?"

The literature shows (and common sense supports) that most often the problems can be traced to the lack of attention paid to the integration of cultures, staff, processes, best practices, and philosophies. As a result:

  • Retention of key employees, at all levels, is compromised
  • Resentment and fear increases among staff and other stakeholders
  • Communication becomes dysfunctional
  • Internal conflict is elevated
  • Morale, and thus productivity, decreases
  • Business continuity is jeopardized

Why M&As Fail

The explanations given for failed mergers and acquisitions are often directly related to the impact on employees and other stakeholders:

  1. Two major reasons for conflict within organizations are role confusion and lack of clear processes.
  2. The difficulty of merging two cultures is usually underestimated. When working with departments who were trying to assimilate after a merger, one woman said, "This is like IBM merging with Ben & Jerry's." She was right. Though their products were compatible, the work environments were total opposites.
  3. Skill and technology transfer is not a given. Even competent employees begin to lose confidence when confronted with a myriad of new protocols, equipment, and expectations.
  4. Though the message given may be "We are equals in this endeavor," it's a stretch to believe it when the names, titles, and location are skewed toward one of the entities.
  5. Key people at all levels may leave prematurely to ensure their security. Not only is the new company then left with major competency gaps, it has also lost valuable institutional history, contacts and information.
  6. Customer loyalty is tested because the customers may feel neglected since so much attention is necessarily devoted to making the merger or acquisition work.

With Every Gain, There Is a Loss

When two or more organizations come together, dramatic changes occur in the work environment. To address people's concerns and anxieties, the tendency is to focus on all the anticipated positive results. What is often ignored, however, is that positive change can be every bit as stressful as negative change, because with every gain, there is a loss.

It can be something as benign as changing computer systems or answering the phone differently, but often the trade-offs are much more difficult and people begin pushing back. It's important to remember that there is good information in resistance, so it's essential to determine the cause of the resistance and to then allow time for processing it. Finding out why people are concerned will produce useful information and show employees that management wants to know what they think.

Focusing on people is essential at each of the three developmental stages:

  1. Once the M or A is announced and negotiations begin, anxiety levels increase.
  2. The first six to 12 months are predictably chaotic and confusing.
  3. People finally become assimilated and a new combined company forms.

Final Considerations to Keep In Mind

If employees and other stakeholders are not a priority in an M&A, impressive financial benefits are not enough. The merger or acquisition is not the end, but the beginning.

When you think you don't have time to devote to the human impact, ask "how much time does it take to deal with dissatisfied employees, inefficient processes, and new hires to replace those that choose to leave?" One way or the other, it's not a matter of taking the time, it's how you prioritize the time it's going to take.

And, if you truly view your employees as your greatest asset, it's important to act accordingly. As the old adage says, "What you say and think is important. What you do really reflects what you believe."

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Social Psychologist and Organizational Consultant Gerri King, PhD, is the president of Human Dynamics Associates, Inc. She trains, speaks, and consults throughout the U.S. and abroad.