Reasons why mergers and acquisitions can fail

Buying an organization can be likened to buying a secondhand car. The seller is going to highlight the positives while concealing or downplaying vulnerable problems.
First List 2000 reports approximately 50 percent to 70 percent of merger/acquisition (M&A) deals fail. Yet, despite the high failure rate, HR magazine reported that in 1998 there were approximately 11,655 domestic M/A deals compared to 5,654 transactions in 1990. The good news is that the business world is finally beginning to recognize the dynamics that lead to failure:
Technology Integration.

PricewaterhouseCoopers' recently surveyed senior executives from 125 companies worldwide to determine the biggest hurdles of M&A deals and found that integrating information systems is the toughest post-deal challenge. Nearly three out of four companies reported problems integrating information systems after a merger.
Culture Shock.

Mergers are like marriages. The right partner must be selected after an honest and meaningful courtship. There must be communication, flexibility and mutual respect.

Organizational culture is a blend of an organization's values, traditions, beliefs and priorities. Also, it helps determine and legitimize what sort of behavior is rewarded in an organization.
The very minute that merger rumblings are heard in an organization, the work climate begins to change. Employees become emotionally confused and anxious, similar to how one might feel when a mate makes an abrupt announcement demanding a divorce. The initial feeling is one of betrayal.

Employees begin to divert time and energy to wonder how their career, power and prestige will be impacted. Gossip within the organization competes with production and then the competition can gain a foothold.

Combining merged cultures requires a focus on one new vision and one new mission, developed by a cross-section team of representatives from both organizations. Problems typically occur when the larger or stronger of the two organizations try to significantly influence the integration.

Jim Shaffer, of Towers Perrin Management Consulting, has a high success rate in linking M&A deals, and offers recommendations to avoid M&A culture problems:

1. Create frequent communications that include all stakeholders-employees, suppliers, customers, government leaders and the community.

2. Managers must always tell the truth, with their actions matching their words. Even the appearance of a single falsehood will break confidence, erode trust and hinder short-term and possibly long-term productivity.

3. Listen. During the M&A process, senior management must facilitate the birth of a new or modified culture by inspiring a new vision. This can be an impossible task without listening to the concerns of people at all levels through the process.

4. Identify the talent in both organizations that would leave the greatest gap if they were to leave. Bailing out is contagious. Focus a disparate amount of energy to retain talent support and commitment.

5. Building revenue and market position are the primary motivators behind mergers and acquisitions, but acquiring management and technical talent has also emerged as one of the top deal drivers cited by almost half of executives in the recent PricewaterhouseCoopers survey of M&A activity.

Freda Turner, Ph.D., researches best workplace productivity and business practices and is affiliated with the Doctoral and Graduate Studies Programs, University of Phoenix.She is available for presentations and may be reached at er@email.uophx.edu.

(Source: http://jacksonville.bizjournals.com/jacksonville/stories/2000/08/28/)