Why Most Mergers Fail and What You Can Learn From Them

As I looked around the room of fifty or so key business leaders, it was obvious we were in the wrong place. I bravely, but mistakenly, stood up and introduced myself.

It was the first week of January in 2000, a couple quick months before the dot com crash and it was just a month after we had sold our rapidly growing business to a west coast technology company out of Seattle. Our two co-founders, our CFO and I were all summoned to a leadership conference in Phoenix to discuss the integration of our merger as well as a couple of other recent mergers. Leadership from all the subsidiaries of the parent company were to be present also.

The night before had been enjoyable. Sitting by the outdoor fire pit at the resort in Phoenix enjoying a break from the Kansas windy winter. The four of us discussed our growth strategies, how we would fit into the new business, how we could leverage their marketing and how they could use our technology. Exciting times!

The 9:00 AM meeting time set for the next morning seemed a little late, but maybe that was just the time zone change talking in the back of my head. Either way, when morning came we were the first ones in the meeting room. Slowly the others came in, from Atlanta, San Francisco, LA and then a few started trickling in from the corporate office in Seattle.

We were waiting on our new CEO to arrive from Seattle. Perhaps he overslept. Maybe he was on an important call with the Board. It could have even been a strategic positioning move to prove he was the boss. Whatever it was, I knew we were wasting a ton of money having 50 of our top leaders in a room doing nothing, so I stood up and introduced myself. We went around the room and everyone joined in. The ball was rolling. This merger thing was going to work.

A few minutes later the CEO arrived and reality started its systematic course correction. Over the next 60 days, it became clear. This was not a marriage made in heaven. Cultures collided. Weekly conference calls with corporate and the other offices were predominately a waste of everyone’s time. Office visits to Seattle were unorganized, scattered and even chaotic. The merger was doomed. There was not an integration plan.

By mid-March, we were told to shut down the Kansas office and move everything and everyone to Seattle. Less than a handful of our team made the move.

What went wrong?

It is still a fact of business that more mergers and acquisitions fail than succeed when it comes to meeting their full strategic objectives.

So it is impossible to start the “merger integration planning” process too early. Even during due diligence, it is sometimes not early enough to capture all the true benefits of a strategic merger or acquisition. First thing out of the gate it is critical to completely define all the benefits of the merger. Sometimes during the hustle and bustle of deal making, we all tend to forget the real reason behind the deal.

Ask yourself at least the following four questions before closing the deal. Come to grips with the answers and make sure there is an integration plan to support the transition.

  • Will you be running the new merged entity independent and autonomous, or will there be a significant amount of integration?
  • Are there performance based incentives or earn-outs which will influence management’s behavior going forward?
  • Will the leadership be consistent, or are there anticipated changes to be implemented?
  • Are there critical positioning or branding issues to be dealt with?

Why do most mergers fail?

Lack of effective merger integration planning.

Since this failure, which eventually ended in bankruptcy, I have participated in several very successful mergers and acquisitions. Some on the buy side and some on the sell side. It can be done. But it takes planning. Sometimes through the planning process you learn the merger should not happen. No merger is a much better outcome than a failed merger.

Photo credit to Janko Ferlic

If you need help thinking through this or other leadership challenges, let’s have a discussion to see if I can help in some way.

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