Pulling off a successful merger or acquisition (M&A) is no easy task. Overlapping staff, culture clashes, messy implementations, and diverging visions are a recipe for disaster. A bad merger can lead to serious frustration at best, or the deterioration of your company's brand at worst.
Nine out of every 10 M&As are destined to fail, but yours doesn't have to be one of them. Here are three important factors to consider before diving into a new partnership:
1. How does this M&A fit into your enterprise strategy?
Your enterprise strategy should be the driving factor behind any decision that impacts your organization long term, including any merger or acquisition. Your strategy should also answer the question "How do we best accomplish the goals of our shareholders?" Sometimes, this may involve expanding your company's expertise, entering a new market, or capturing a segment of an audience that has eluded you.
A smart merger or acquisition can help you fulfill these goals, but only if your M&A strategy is working in lockstep with your broader enterprise strategy. This rarely happens if your leadership team isn't willing to take a hands-on approach. It's important for company leaders to be able to articulate the type of partnership they're looking for, meet with companies on their shortlist, and collaborate with various shareholders post-acquisition to ensure a smooth transition.
2. Are your company cultures in alignment?
Company culture will make or break any merger or acquisition. Take Amazon's 2017 acquisition of Whole Foods, for example: What started out as a dreamy partnership has morphed into a bitter culture war. On the one side, you have a performance-based retail giant with a very rigid hierarchy. On the other, you have an egalitarian organic grocer with decentralized management.
Amazon and Whole Foods were fundamentally incompatible from the beginning, but they aren't the first companies to make this mistake. A recent survey of executives found that 92 percent of M&As would have benefitted from a stronger understanding of culture before the merger.
However, you can't rely solely on the values an organization espouses on its website to understand its culture. If possible, spend some time at the offices of the organization you're courting and observe day-to-day operations. For example, Credera, a management and technology consulting firm, followed a "people and culture first" strategy during its most recent acquisition of London-based consultancy DMW Group and had employees from both companies meet and spend focused and intentional time together before making anything official.
Make sure your M&A team have their boots on the ground. Take the extra step and see how different employees interact with one another. Talk to your employees about how they feel the interactions went. Most importantly, be willing to walk away if the merger isn't going to be the right fit for everyone.
3. How will the move help both companies grow?
While your main concern is how an M&A will benefit your company, successful mergers and acquisitions are always a two-way street. Before you approach another company about an M&A, take the time to lay out what your organization brings to the table. Does your company have the spending power to help an underdog grow? Does a potential merger unlock new markets that each of you needs to compete globally?
If you're contemplating an M&A, you must be committed to adding value to the other company. The failed DaimlerChrysler merger is a classic example of what can happen when a global leader tries to build an empire without improving the companies it's "conquering." Daimler-Benz wasn't interested in growing the Chrysler brand, and it quickly became apparent that the "merger" was more of an ill-conceived acquisition.
Before you get too far down the road with an M&A, take the time to lay out a clear path to accelerated growth for both organizations. In every case, be sure your plans are realistic. As many statistics and case studies reflect, mergers and acquisitions are oftentimes more costly and take more time to implement than planned at the outset. Your company must have adequate bandwidth and resources to make the M&A a success.
Mergers and acquisitions are historically tricky to implement successfully. But if done right, both parties should come out winners. The secret is to make sure the M&A is a good fit--both for your company and the other party. If your organizations are compatible and you have an airtight strategy going in, you can vastly improve your odds of success.