Nine Sins of Business Mergers

Last updated on: June 15, 2006 at 6:07 pm by Desh Kapoor

Nine Sins of Business Mergers 2006-06-15T18:07:00-05:00 Desh Kapoor

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Since I am on Mergers right now, how about the NINE Sins of Mergers? Here is a good article from HBS Working Knowledge.

Sin number one: no guiding principles
As rudimentary as this sounds, we often see merging companies fail to develop a set of guiding principles linked to the merger’s strategic intent. These principles should get at the very logic of the transaction—is the merger an absorption of one company into another or a combination designed to take the best of both? Perfection may not be possible, but these principles will assure that all decisions drive the combined entity in the same direction. In a best-of-both-companies transaction, for example, one principle might be: "Combine IT organizations by selecting the most up-to-date systems and deploying them across the combined entity."

Sin number two: no ground rules
While this sounds similar to sin number one, ground rules for planning provide nuts-and-bolts guidance for how the planning teams should act as they begin to put the face of the merged entity on paper. These rules should include processes for how decisions are to be made and how conflicts should be resolved.

Sin number three: not sweating the details
It’s hard to believe, but detailed post-close transition plans can be lacking even when two companies are working hard and have top-level leadership closely engaged. Why? To some extent, this reflects the daunting complexity of any integration. It can also, however, reflect the culture of the companies and a resistance to detail and top-down accountability. The acquirer may be suffering from acquisition fatigue, management distraction, a reluctance to share information, or a simple unwillingness to follow a methodical decision timeline.

Sin number four: poor stakeholder outreach
All relevant stakeholder groups—both internal and external—must receive communication about the transaction, early and often. While employees (see sin number eight), customers, and regulators get the bulk of the attention, there is a long list of additional stakeholders such as communities, suppliers, and the like who also need care and feeding. Management must strive to understand how these groups view the deal and how they might react to changes such as new pricing, the elimination of vendors, and adjustments in service and personnel.

Sin number five: overly conservative targets
Management must set aggressive targets from the start. This helps reinforce and clarify the transaction’s guiding principles and strategic intent, specifically, how hard the integration teams need to push for cost savings and revenue growth. Most companies tend to focus on one or the other—but neglect to place adequate emphasis on both. Experience demonstrates that management never gets more in synergies than it requests. So, build your targets with some stretch and expect that your people will find a way to get there.

Sin number six: integration plan not explicitly in the financials
We have seen merging companies build detailed integration plans only to stop short of driving them into the combined entity’s operating financials in a clearly identifiable manner. Institutional memory is short and the plans are often redone on the fly (see sin number nine). While the integration plan will evolve, you need to create financial benchmarks that can be tracked.

Sin number seven: cultural disconnect
Bringing disparate groups of people together as one company takes real work and represents an effort that is often largely overlooked. Culture change management is not indulgent; it is a critical aspect of any transaction. However, simply acknowledging the issue or handing it off to specialists is not enough. Management must set a vision, align leadership around it, and hold substantive events to give employees a chance to participate. Detailed actions and well articulated expectations of behavior connect the culture plan to the business goals.

Sin number eight: keeping information too close
There is a natural hesitancy to share information, and current regulations put pressure on what management can tell the organization without going to public disclosure. However, absent real facts, the rumor mill will fill the void. Tell employees what you can. Also, tell them what you can’t tell them at the moment, why, and when you will be able to do so.

Sin number nine: allowing the wrong changes to the plan
After all the hard work and despite meticulously avoiding sins one through eight, some companies still miss the mark. The popular trend toward empowered line managers and decentralization carries the risk of handing off carefully designed plans to new decision makers who are not steeped in the balances and considerations that made the plan viable in the first place. Following handoff, every company needs clear decision rights about who can change the agreed-upon plans, under what circumstances, and with what approvals.

Tags: Mergers, Acquisitions, M&A

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