How to Avoid the Top Three Derailers of M&A Success

Some hear merger and acquisition. Some listen to Scylla and Charybdis. In any case, most are drawn to their death or destruction. While the lure of mermaids was a myth, we know that 83% of mergers and acquisitions fail to increase value. And we know why. They fail due to poor strategic focus, poor cultural integration, and/or poor synergy building. Unfortunately, avoiding these sirens requires more than just waxing your ears. It requires deliberate and detailed effort.

Strategic approach

How many times have you heard someone say that one of their growth strategies is mergers and acquisitions? But mergers and acquisitions are not strategies. They are a facilitator of another strategy.

Strategy is about creating and allocating resources in the right place, in the right way, at the right time, over time to overcome barriers and deliver what matters. That means there is a wrong place, a wrong time, and a wrong path. Strategies therefore refer to fundamental choices about where to play and how to win. And the heart of how to win is the central focus of an organization.

Michael Porter suggests that almost any value chain includes design/invention, production, delivery, and customer service/experience in addition to marketing and sales. Your single overarching strategy must identify the right way to build and leverage differentially valuable advantages over competitors in one of the top four, while also marketing and selling, which every organization must do one way or another.

That core strategic focus flows into strategic priorities supported by enablers and capabilities. For example:

  • Apple win with predominance design and technological innovation. Their stores are a marketing vehicle.
  • Coke win with a predominant production based on its physical assets, associated with the prevailing distribution system of its bottlers.
  • walmart win with a predominant product offering/delivery infrastructure.
  • Ritz-Carleton win with predominance based on people Service/guest experience.

The 17% of value-creating M&As typically enable an existing strategy. Apple should do mergers and acquisitions that further enable design. Coca-Cola should focus on production. Walmart should focus on the supply or delivery of products. The Ritz-Carleton should focus on the guest experience. And you need to focus on mergers and acquisitions that enable your primary focus.

cultural integration

How many times have you heard someone say that they will acquire another organization and keep it running as a separate entity in order to preserve the strengths they bought? Too many times. Almost by definition, you can’t reap the synergistic benefits of a merger or acquisition by keeping them separate. You cannot enable your main focus separately. You have to merge and integrate them.

You have three options. 1) Assimilate your people to your culture. 2) Assimilate your people to their culture. 3) Combine the two in a new culture. The first two options are painful for people who give up their inheritance. Many of them will not make the transition and will leave one way or another. The last one is the most complicated. In either case, the culture must align with the core focus:

deliver synergies

Many times, “synergy” is a euphemism for “cost savings”. To be fair, cost savings is an important way to free up funds for other investments. But, the most important synergies combine complementary strengths to enable strategic priorities.

Witness Disney’s acquisition of Pixar. They didn’t care about cost savings. They bought Pixar a) to leverage its technology in all of their animation and b) to acquire new leadership for Disney Animation. They then plugged others into the new beefed-up platform to gain access to other characters and distribution channels with their acquisitions of Marvel and then Lucas Films/Star Wars and then Fox.

The Right M&A Mindset

None of these are easy. Thought is complex. The implementation and change management required are complex. As you look at future mergers and acquisitions, think about:

  1. The strategic approach. Make sure you are clear about your primary focus and how the merger or acquisition goal will enable your strategic priorities.
  2. cultural integration. Yes Virginia, you have to integrate your acquisitions. Having a bias to choose one or another culture and assimilate everything in it.
  3. Delivering synergies. Yes. Cost savings matter. And look for complementary synergies in line with your strategic focus and your new combined culture. Yes. All three ideas are integrated, as are their mergers and acquisitions.

Click here for a list of my Forbes articles (of which this is #786) and a summary of my book, The M&A Leader’s Playbook

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