The title of this article seems a bit brutal. Surely most mergers work. After all why do so many firms do them if they fail so often? The cold statistics tell another story. These three studies were based on mergers across the board, not just in the professions. But they may hold some useful insights for professional firms.
- Research carried out by Bath Consultancy suggests rather worryingly that, whereas most senior executives think their mergers have succeeded, the data shows that performance drops. Indeed 70% of mergers and acquisitions fail to realise their predicted financial and performance benefits.
The research suggests that the main reasons for failure are as follows:
- Having too long a period of uncertainty
- The inability to bring the two cultures together in a mutually beneficial relationship
- Not retaining the key people
2. Research by Booz Allen discovered that two thirds of mergers failed at the execution phase without proper integration teams in place dealing with the risks of merger failure.
They called these risks the nine deadly sins:
- no guiding principles – for example, is the merger an absorption of one company into another or a combination designed to take the best of both?
- no ground rules – including processes for how decisions are to be made and how conflicts should be resolved.
- not sweating the details – detailed post-close integration plans can be lacking
- poor communication to stakeholders – creating uncertainty and demotivation
- overly conservative targets – aggressive targets reinforce and clarify the transaction’s guiding principles and strategic intent and how hard the integration teams need to push for cost savings and revenue growth.
- integration plan not explicitly communicated in the financials targets
- cultural disconnect – management must set a vision, align leadership around it and engage with staff
- keeping information too close – the rumour mill will fill the void
- allowing the wrong changes to the plan – too much empowerment of middle managers can cause problems, so an integration manager can help
3. Deloitte Consulting come up with similar advice based on experience with more than 600 mergers across the world. To avoid merger failure:
- Keep the deal strategy brief and to the point
- When pursuing cost synergies, avoid cuts that detract from value
- Create a common enemy
- Manage the merger process meticulously
What are our views in the professions? Are we good at mergers?