Why Merger and Acquisition (M&A) Growth Strategies Fail
Mergers and Acquisitions (M&A) are time-honored strategies to grow a business. Want to enter a new market or quickly add quality people to your firm? Simply buy (or merge with) a company that checks all the boxes. In a relatively short amount of time, you can add valuable new expertise, multiply your resources and reach entirely new markets. If only growth were so simple! Like any business growth strategy, M&A comes with inherent risks, too. In fact, a half-baked acquisition can create major operational headaches, damage your reputation and stop growth in its tracks.
According to Harvard Business Review, between 70% and 90% of acquisitions are failures. That’s a sobering statistic. And you don’t have to think too hard to come up with examples. Remember HP’s disastrous acquisition of Autonomy? Or Microsoft’s purchase of Nokia’s phone business? But these are giant, multi-billion-dollar plays that attempted to integrate multi-national corporations.
Smaller deals — such as a consulting firm that acquires a similar organization in another city — are somewhat more likely to work out in the end. Cherry Bekaert, an accounting firm based in Richmond, Virginia, has grown into one of the Southeast’s largest firms largely through acquiring small local practices over time. The strategy has worked because the companies they acquired were operated by accountants like themselves. The cultures were not all that different and the deal benefitted everyone.
But even these smaller-scale transactions can be risky. In this post, I’m going to describe three common ways that M&A strategies fall apart. If you decide an M&A strategy is right for your firm, these examples will help you avoid some of the mistakes others have made.
Point of Failure 1: A Clash of Cultures
Take two established businesses, with unique cultures and mash them together, and what do you get? If not handled tactfully, the result is often distrust and hard feelings. Reconciling differences in culture is a tough challenge.
Take Bank of America’s acquisition of Merrill Lynch a few years ago. The two cultures couldn’t be more different; a southern, traditional retail bank on one side, a fast-paced New York ethos on the other. While the two institutions are still together today, there were a lot of struggles along the way. Many valuable professionals walked out the door rather than adapt to a radically different culture. So what can you do to avoid this poisonous problem?
First, both sides need to acknowledge that ensuring a good fit is vital. Try to understand where each firm’s motivation comes from. Fast growth? Employee happiness? Delighting the client? If these two worldviews aren’t compatible, chances are the whole thing won’t work out.
Second, talk about what a merged culture might look like — and how you might express this in your employer brand. (Your employer brand is the subset of your company brand that speaks to prospective hires.)
Third, do some research. Hire an experienced third party to assess your cultures and the marketplace they will be serving together.
Finally, put the right incentives in place to make Go to the full article.