Why Most Mergers Fail to Deliver on Their Promises

A clock with a 24-hour dial.

Most mergers take too long to implement

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.

  1. 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?

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2 Responses to Why Most Mergers Fail to Deliver on Their Promises

  1. Tony – Your comment seems about right. The failure rate of mergers has been way too high for a long time. I recall studies from the mid-90s that suggested that 2/3 failed. The big question I ask myself, why can’t we learn. I am reminded of Samuel Johnson’s comment when he learned that a friend had remarried after the end of an unhappy marriage. Presumably he told Boswell, “it is the triumph of hope over experience.” Maybe we are incapable of learning.

    • tonyreiss says:

      Rick,
      Thanks for your comment and sorry for delay – have been travelling.
      In the professions (the market I work in mostly), there are some firms (often in the Avis ‘trying harder’ camp, rather than the top dogs) who are doing strategic mergers to destabilise the market, create a different offering etc. But most mergers seem defensive to me. Instead of dealing with whatever underperformance exists, they’re covering it over and hoping it’ll go away!
      Very few in senior management positions have a handle on the emotional effects of staff, particularly those in the back office. The fee earners are typically less effected.

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