M&A: Understanding Reasons for Failure and Preparation for Success


Kenneth A. Polcyn, Ph.D.

Senior Consultant

©2005, Deva Industries, Inc.



An interesting statistic: Roughly 50 percent of United States marriages end in divorce. Why? Probably there are many things couples don’t know about each other, their selves, working together, the world they live in and obviously the future. What does this have to do with company Mergers & Acquisitions (M&A)? There seems to be many similarities, but the male/female marriages are doing better than M&As. 


The January/February 2000 SI Review stated that only about 30 percent of all M&As are likely to achieve the goals sparking the marriages. Moreover, according to a March 27, 2002 Investors Business Daily article, there is only a 16 percent probability of an M&A adding to the bottom line. A specific example is the Hewlett-Packard (HP) Compaq Computer M&A undertaken in a growth strategy. It didn’t work, resulting in the ouster of CEO Carly Florina. Furthermore, according to the July 20, 2005 edition of The Wall Street Journal, HP plans to layoff 14,500 employees and freeze U.S. workers’ defined-benefit plan, hoping to improve the bottom line.


Why do M&As fail to achieve goals of growth and contributing to the bottom line? Over several years Right Management Consulting, Inc. (RMC) studied 179 small to mid sized, and KPMG 700 large companies undertaking M&As. To summarize some results, they found several common interrelated management reasons. One was that key acquired company management left early in the integration process; sometimes a reason for the departures was paying too much up front. Moreover, there was a lack of true integration with failure to eliminate redundancies or institute common systems, for example, in finance, accounting or purchasing, along with supportive policies and procedures. Another was the assignment of acquired staff to inappropriate work. Then there was overall poor management of employees caused by poor communication between managers and management and staff. Related was management denial or inattention to key workforce issues leading to lower individual performance and overall productivity. Of course all of this led to more personnel leaving. Lastly, ignoring the ‘cultural fit’ tended to further doom some marriages. When cultures were not compatible a ‘cultural clash’ sometimes occurred as they competed for dominance diverting attention and resources from intended business.


Given the above, RMC, KPMG plus others recommend doing your homework before making an M&A commitment. Initially a comprehensive due diligence should be executed to ensure, for example, a cultural, talent, finance and product/service compatibility base on which to create a viable vision of M&A transactions that are desirable and doable. Once a decision is made to move forward, a realistic and viable financial reward structure is needed for all stake holders, buyers and sellers. When accepted an M&A Manager with power to make decisions, and an integration team, should be selected and trained; and a plan created with roles and responsibilities clearly defined to make it happen. Afterward, the staff of these companies should be informed of their role, providing as much information as soon as possible, with timely updates as changes occur. Relative to the latter, make sure communications are received and understood. Further, true integration should have a long-term view, showing progress toward an evolving ‘new’ company for employees. Thus successes at each step along the way should be communicated to everyone to build confidence in their contribution to company integration success and benefit for clients, employees and other stakeholders.


In the end we come back to leadership. The behavior of acquiring company leadership, including the CEO, M&A Managers and others, set the tone for M&A success or failure. Ego is hidden in the best-intended companies; ego is a player that at times blurs M&A reality and success. The superiority attitude and behavior of the acquiring company personnel can belittle those being acquired. Think team. An M&A is for the benefit of all players!