The last few months have been a distraction from running the business.
Due diligence has consumed your every waking moment. You can’t even remember why you began this acquisition process. It was supposed to build on core competencies and leverage synergies, but as the days go on, it is clear that these companies aren’t compatible.
KPMG interviewed 100 executives who had completed 700 deals over two years. 83% of the mergers failed to produce any benefit. Over half of the mergers destroyed value.
Mercer-Kroll reported a 50-70% failure rate in acquisitions they’d worked on for two years. According to studies reported, there are many reasons that acquisitions fail to reach the final integration stage.
Reasons Behind Failed Acquisitions
- Changes in the competitive environment – Failure to recognize that the competitive environment will change and continue to evolve, changing the value of the acquisition.
- Failure to Create Value for the Customer – An acquisition should result in customers being better served.
- Employee Disengagement – Studies report a 23% increase in “employee disengagement” after an acquisition event, and this may last up to 3 years. Disengaged employees get in the way of acquisition success.
- Poor Leadership – This can result in poor communication or a post-acquisition power struggle that negates the effectiveness of any expected synergies.
- Culture – Radical differences in company culture can be hard to bridge quickly, or ever. Sometimes technology teams at target companies purchased for their technology perceive the confidence displayed by arriving new management as cockiness, stupidity, or lack of appreciation for the subtleties of the technology developed.
- Lack of Communication – Lack of communication with each team, and lack of communication between the acquirer’s team and the target’s team limit chances for success.
- Poor Integration Process/Strategy – Lack of careful planning, clarity, and appreciation for details regarding key employees, initiatives, teams, processes, products, marketing, and customer service can destroy acquisition value as the post-acquisition process unfolds.
- Misevaluation – This can be due to inadequate due diligence, perhaps because:
o the team assigned wasn’t strong enough for the task, because perhapso not enough time was allowed to gather and analyze the facts, oro the vital low-level management team members who know the details and run the company were not engaged in the evaluation process
- Technology – Incompatible technology, often due to lack of ERP integration (the integration between ERP, CMR, or billing systems), can diminish the greatest of potential acquisitions. Failure in ERP integration was first noticed as a powerful fatal problem as far back as 1968, when the newly created Penn Central Railroad, a merger of the Pennsylvania Railroad and the New York Central Railroad, lasted only 367 days.The book “The Wreck of the Penn Central” describes the ERP integration failure arising from differing technologies led to a loss of customers and millions of dollars in billings each quarter, described this way:
“… when the merger finally began, the Penn Central discovered to its horror that it’s “modernized electronically automated equipment” didn’t work worth a damn. Because the different computer systems of the Pennsylvania and Central were not made compatible in advance of February 1, 1968 (merger date), they started off not talking to each other, electronically speaking. Data gathered along the old New York Central couldn’t be transmitted directly to the PRR’s… brain center in Philadelphia.”
Blackstone+Cullen Can Help Make Your Acquisition Successful
Blackstone+Cullen has over 30 years of experience with Mergers & Acquisitions from both a strategic and technological perspective. Over that time, we have learned the goals (and pitfalls) of acquisitions. Blackstone+Cullen can help you navigate the critical steps outlined here.
Find a Compatible Candidate Company
Compatibility can come into play in many different areas of an organization. All companies need to assess the compatibility of culture, technology, and offerings to determine whether there will be a strategic fit. If an acquired company has multiple ERP systems to integrate, that could add extra time to the integration process.
Complete the Due Diligence
The Due Diligence period can be very time consuming and stressful. Company owners can be distracted with all of the day-to-day information-gathering required to prepare the documentation for the purchaser. For this reason, Blackstone+Cullen advises its clients to assign these duties to an administrator/project manager who is under a non-disclosure agreement with the organization. It will free up time for the business owner to focus on the success of their organization during this time.
The transition period begins once the financial transaction is complete. This period will include the implementation of a new culture, strategy, and technology. During this time, it will be incumbent upon the owner of the company to reduce turnover and increase employee engagement as much as possible. Whether it is from uncertainty or a culture shift, the new management must create a positive environment that brings together the best of both organizations. The management team must also have in place a guiding strategy for the growth of the new company.
Finally, a strategy to integrate technology like ERP and CRM systems is mandatory to complete a successful merger and acquisition. Now is the time to take those disparate data sources and bring them into one dashboard to give visibility to your persistent and actionable data. Combine your CRM, ERP, and all other data sources to provide you with one version of the truth.
After that, nothing can stop you!
- Why Half of All M&A Deals Fail, and What You Can Do About It, by Robert Sher, 2012
- 83% of Mergers Fail – Leverage A 100-Day Plan for Success Instead
- Koi-Akrofi, Godfred. (2016). Mergers and Acquisition failure rates and perspectives on why they fail.
- International Journal of Innovation and Applied Studies. 17. 150-158.
- Daughen, Joseph R. and Binzen, Peter, The Wreck of the Penn Central, Beard Books, 1999.
- Forecast for M&A Market Growth in 2020
- Top Reasons Why M&A Deals Fail