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.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.


 

Head Shot

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 WeberChristina ObergShlomo 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

Are you Do–>Think or Think–>Do?

The ability to understand the unique ways people think, act and learn allows us to be more effective in our work and personal lives. As I consult, one of my favorite filters to help me do this is determining whether people demonstrate a preference for thoughtfulness or for action. I have dubbed this the ‘do–>think or think –>do’ test.
This concept was developed while listening to a presentation by Robert Moran (Brunswick Group or @robertpmoran). As he discussed an organizations strategy, he used think/do or do/think to define the two strategic options of the company. I have borrowed and extended this principle as it also applies to human and organizational behavior.
Think of some of the people that you interact with regularly (including yourself!) and ask yourself which one of these two categories fits best:
1. Do–>Think: These people are action oriented and like to get their hands dirty. They get to it and are comfortable working with an imperfect plan. Once things are underway or completed, they assess what they have learned and how to improve it.
Example: As I taught a board game game to a group of people this weekend, Ryan interrupted me two minutes into the rules and asked, “can we just begin playing and learn it as we go?” He demonstrated a strong do–>think tendency.
2. Think –>Do: These people prefer to begin by thoughtfully considering what needs to be done. They consider options, line up their priorities and then systematically work their way through them. They are not afraid of action, they just want to spend time on the best ones.
Example: I am teaching some on-line Master’s level courses this fall. The think–>do students in my class are sending me emails in the first week asking for clarification on paper requirements (and also sending in a draft for review prior to submitting the final paper).
We fluctuate between both of these modes of operation each day. Certain circumstances lend themselves more naturally to each of these styles. For example, contrast the difference between the development of a five-year strategic plan versus assembling your child’s new toy. Or perhaps at the height of your busy work season you may not have time to think/do. Sometimes circumstances will dictate our preferred method.
However, I believe that each of us also has an innate bias. I need to tackle large problems with time to think and ponder. In contrast, some industries move so quickly that they often need to be more do/think (think of technology and apps). This filter has helped me understand that I need to shift my preferred style at times in order to work more effectively with the do–>think people or to get work done on a tight timeline.
Here are some ways to apply this principle:
  • Assess the members of your team and identify their tendency.
  • Discuss this model with them and ask them to identify their own tendency? Is it the same as your observation?
  • Identify the person you often conflict with at work. Could your conflict stem from a different do–>think or think–>do orientation?
  • Review whether you identify the style which is different than your own as ‘wrong’ or ‘different’?
  • Determine how having different styles will help you and your team.

There is no single filter that helps you understand a person perfectly. However, the do–>think or think–>do is one tool which is easy to use and often provides you with quick insights about how to best work with a person.


 

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Do Your Organizational Values Have Legs?

I love it when organizations have clearly defined values. I love it even more when you see those values exemplified in practice. However, the opposite also occurs!

A friend recently told me about a less-than-positive experience during her new employee orientation. She works as a nurse and was hired by a well-regarded hospital. Their orientation blended new staff from every department and role. boxed lunchIn this particular orientation, there was a new cohort of medical doctor interns. At the catered lunch, my friend took a lunch box from one of the two tables in the room. As she took the lunch, she was told that these lunches were only for the interns and that she needed to take her lunch from the other table. Attendees observed that the interns received a higher quality lunch and a clear hierarchy was silently established.

For an organization touting the values of respect, integrity and professionalism, there was a gap between what was stated and what was practiced. Shane Atchison purports that organizations which post their company values all over their walls have serious culture problems. In other words, a company’s values need to be lived, not talked about. While it is easy to point a finger, there are few of us who have not done the same thing over our lives.

Which value is the most difficult to practice in your organization? Where do you have opportunity to tighten the gap between what you preach and what you practice? If you don’t know, I’ll bet your employees do!