How to Predict Successful Business Mergers & Acquisitions

Mergers and acquisitions (M&A’s) are an important part of our business landscape. In America, about 10,000 of them occur each year. While organizations celebrate these acquisitions, their excitement may be short-lived as statistics reveal that most are doomed to fail. So is there a way for organizations to ensure success as they merge with another?

The Big Picture

Globally, there were about 30,000 M&A’s in 2011. In the United States alone, the volume of M&A activity was 9,923 transactions (2011). These acquisitions were valued at $1.59 trillion (Weber, Oberg & Tarba). This data demonstrates that the ability to predict M&A success is a significant issue.

However, while M&A’s are a popular strategy, they are often unsuccessful. Research studies show that 50% of M&A’s fail (Weber, Oberg & Tarba) and some believe that the failure rate is as high as 70%-90% (Christenson, Alton, Rising & Waldeck). This means that organizations need to become adept at recognizing the key issues which will foster M&A success.

Figure 1 outlines 12 factors which have been found to influence M&A success or failure.  However, one of the factors on this list predict M&A success with an accuracy of 96%! What is this key factor?

The answer is culture.

Organizational culture compatibility is a huge determinant in the success of an M&A. This supports Peter Druckers famous statement that “culture eats strategy for lunch”. The greatest strategy can be derailed by a team that is not aligned.

Research by Cameron and Quinn reveals that 96 percent of the time, successful mergers and acquisitions can be accurately predicted based solely on cultural match.  As the old adage notes, a house divided cannot stand.

I utilize Cameron & Quinn’s research to conduct cultural assessments which help clients understand their cultural norms. It also provides a blueprint to develop healthy and aligned cultures. As the above research highlights, the insights from this process can also reveal whether the merging cultures are best described as a house divided or one that can be unified.

The importance of culture is a valuable insight for those involved in M&A’s. Investors, bankers, entrepreneurs and business owners can all benefit from the cultural assessment tool as it helps avoid some of the pitfalls involved in failed M&A’s. Please contact me if you would like to explore how this tool can help your organization.

Dr. Jeff Suderman is an organizational culture specialist, consultant and professor who works in the field of organizational development. He partners with clients to improve culture, leadership, teamwork, organizational alignment, strategy and organizational future-readiness. He resides in Palm Desert, California. Twitter: @jlsuderman

Reference

Cameron, K.S,  Quinn, R.E. (2011). The Competing Values Culture Assessment.

Clayton M. Christensen, Richard Alton, Curtis Rising, and Andrew Waldeck The Big Idea: The New M&A Playbook. Harvard Business Review. (MARCH 2011 ISSUE https://hbr.org/2011/03/the-big-idea-the-new-ma-playbook

Straub, Thomas (2007). Reasons for frequent failure in Mergers and Acquisitions: A comprehensive analysis. Wiesbaden: Deutscher Universitäts-Verlag (DUV), Gabler Edition Wissenschaft.

Yaakov Weber, Christina Oberg, Shlomo Tarba (YEAR).  Comprehensive Guide to Mergers & Acquisitions, A: Managing the Critical Success Factors Across Every Stage of the M&A . Published Dec 19, 2013 by FT Press. Process . http://www.ftpress.com/articles/article.aspx?p=2164982