3 Secrets to Successful Mergers & Acquisitions

Mergers and acquisitions can be a great way to grow a business. It is an effective way to grow market share, acquire technology or talent, expand into new geographic locations, increase economies of scale, etc. It also has drawbacks. Aside from it being an expensive way to grow, it is a marriage of two companies that have preexisting identities and cultures. Effectively combining the two to make one new organization has been a challenge for senior leaders over the decades. In fact, more than

50% of mergers or acquisitions never fully realize their intended benefits. Why does this happen?

To start, M&As can signal code words for existing staff and management. It often means a loss of jobs. In many cases, the new company from a merger or acquisition may have redundant jobs. For example, it may not make sense to have two CEOs. This holds true for many other positions. Therefore, redundancies are eliminated. The elimination of redundancies can have an immediate impact on morale for both organizations. People may be nervous and distracted because they are unsure of job security. This initially decreases work productivity. 

Once the job cuts are made, people fight for turf and resources. A merger or acquisition can be the catalyst for an ‘us against them’ mentality in both enterprises.

One strategy that is no secret comes from former CEOs like, Jack Welch. He had a philosophy that said, ‘it’s the GE way’. When GE acquired your company, you knew you were going to have to do things according to GE’s culture and organizational structures. For GE, it worked. However, there are many other effective ways to integrate companies from M&A activity.

I’ve had the privilege of spending an enormous amount of time with many former and current CEOs of large corporations. They have all engaged in M&As and have various approaches. Below are 3 strategies that may appear counterintuitive. Yet, they are effective.

1. Holiday Inn bought Harrah’s Hotels & Casinos. The people at Harrah’s were terrified they would no longer be a five star hotel after they were acquired by Holiday Corp. Upon hearing these concerns, the new CEO set up town hall meetings with every single person in the company. He met with them in groups of 10-15 and assured them Harrah’s would remain a five star hotel. He also made them aware of his open door policy and his commitment to improve the hotels. This approach worked very well.

2. In the restaurant industry, the CEO found that eliminating redundancies created greater problems. The company purchased chains of upscale restaurants around the US. When he centralized marketing, accounting, management, etc., the central marketing department, for example, did not always understand the demographics in another state. As a result, fewer resources may have been allocated to some restaurants. This turned into political battles and a fight for resources. The CEO saw that it was more cost efficient to let each restaurant chain keep their existing departments. That approach made his acquisitions very successful compared to his competitors who centralized everything.  

3. An alternative perspective for M&A activity could be to take proactive steps. While it is easy to simply eliminate redundancies, there may be a better way to leverage existing staff and management before they are viewed as redundant. Every organization has unmined talent. And every corporation has untapped opportunities. And the economy constantly goes through up and down cycles. The excess staff and management could be organized into a task force that is responsible for penetrating untapped opportunities that are tangential to existing business. For example, the merger between two companies that manufacture paper for newspaper would have many redundancies. They also have the constant threat of becoming obsolete because of technology. And they are structured to produce a product that is made of paper. A task force could be assembled to explore new opportunities in producing toilet paper. As the global population grows, the toilet paper industry would seem to be less threatened by technology. Even though distribution and target market would be different from print newspaper, there will be transferability in machinery, sales and production.

Instead of looking at people as excess and firing them, a tangential industry preserves jobs and increases revenue growth. More importantly, it mitigates the risk of decreased revenues in recessions.  

As you see, there is no silver bullet for integrating people post M&A. In many cases, post integration is the most expensive part of M&As. Except, there are approaches to combine cultures without destroying the integrity of the enterprises intent. What works for your company?  

What do you think? I’m open to ideas. Or if you want to write me about a specific topic, connect through my blog www.turnaroundip.blogspot.com.