Mergers and acquisitions are typified by power games – everyone wants to be on the ‘winning’ side – and excitability about the potential for increased profits.
In this blog I want to look at the issues of mergers and acquisitions – these insights have been gained from years of experience in the M&A market: I was on the London management merger team when Ernst & Young was formed (now EY); coached a global ceo who merged a US/UK operation; years of PR, crisis communications and internal communications around the process; organising an FT conference on the subject – and running courses on internal communications for the CIPR and hearing how nothing changes!
First, the issues. A report from Deloitte said that 30% of mergers fail because of cultural issues.
The problem starts from the first press release announcing the deal. A great example was when the German giant, Bilfinger, swallowed up GVA. Some media reported this as an acquisition while others talked about GVA ‘agreeing a merger with a global player’. Bilfinger is an €8.5bn company and the transaction is worth £150m. You decide, merger or acquisition?
Compare the two headlines below and you just know the hours of negotiation to agree the press release alone.
The risks of mergers and acquisitions
The problem with deals is that they are nearly always led by the financials – and dare I say it, a lot of egos. David Thurkettle of PwC last analysed the state of law firms a few years ago and said too many were trying to merge to improve profitability. Too often mergers are done to solve the wrong problems.
In my view, the key risks of mergers and acquisitions are
Sensitivities and egos. The classic is this issue of talking about a ‘merger’ when it is perfectly clear to everyone that it is a take-over. If you can’t be honest pre-deal, you have created a Pandora’s Box to open post-deal
Everyone wants to be on the ‘winning’ side and will position themselves to be on the board, the head of their department, the key person for their expertise
What have you bought?
Skeletons in the cupboard. Poor due diligence is usually to blame – and often failing to take references and sound out clients and others about how they rate key people and directors
Does the talk match the walk?
Both ceos and their PR teams create a vision that looks good in the press release but in the end proves difficult to deliver in reality. Look at the words used in these two merger press releases:
“…created one of the strongest firms focused on the mid-market, with the breadth and depth to work with ambitious businesses that want exceptional service and access to impressive UK and worldwide networks…” (BDO and PKF)
“This transaction offers us the opportunity to better serve customers by adapting more quickly to evolving shopping preferences in diverse regions across the country” (Albertson’s and Safeway)
When have you ever seen two businesses with exactly the same cultures? A speaker at the FT conference I organised years ago said that most mergers failed because of the people side and as Deloitte’s report shows, continues to be a critical issue. Culture clashes are one of the biggest risks – which start with a failure to map the cultures of the two organisations and agree how the new combined business should operate. Should it be entrepreneurial and quick decision-making or thoughtful and thorough; fun or traditional; local or international and more
In the heady days of getting the deal done, many of the signatories may know that there will have to be cost-cutting and redundancies, but in the first raw days after the deal often avoid talking about this. Even if there are genuinely no plans for redundancies initially, these can become needed later or you find good people and good teams start leaving. I remember going round all my division on the day after the Ernst & Young merger was finalised and talking to each department to outline the vision and confirming there were no plans for redundancies. I genuinely believed what I was saying. Joe, who was nearing retirement, said in a kindly way ‘boss, sure you mean it but you tell me where are the partners left from….?” and rattled off a dozen names from firms that had merged over the years to create ours. I was still relatively young and gut instinct at that moment told me Joe knew a great deal more than I did.
Not grasping the big issues – It is rare in a business that the troops don’t know what needs to be done as much as management. Management teams can quickly lose respect and employees become demotivated with the water cooler chat of ‘I knew it wouldn’t work’
It is very easy with a complex deal to be a year on and little has changed and certainly the vision is not delivered.
In my next blog, 5 inside secrets to successful mergers and acquisitions, I share my thoughts on how to avoid these problems and ensure your merger or acquisition is successful. And communication is at the heart of this.