In a merger or acquisition, discord of company cultures and disparate systems can cause the demise of a once-promising partnership. About 70% of acquisitions fail when post-acquisition results don’t meet pre-closing expectations. Many of these M&A failures are caused by poorly executed integration.
What’s surprising is that M&A failures are avoidable with careful integration planning and strategic post merger integration. Pre-acquisition, it takes a lot of forethought on how company cultures might clash and how their systems will integrate. Post-acquisition, it takes a ton of strategic elbow grease to rapidly align systems (and eliminate some), retain productive employees, keep customers, and make stakeholders happy.
A Harvard Business review article reported that cultural integration planning or human due diligence is the foundation for a successful merger or acquisition, yet it is often overlooked. Human due diligence spells out roles, decision-making responsibilities, cultural dynamics, capabilities, and internal attitudes. According to the 2018 Deal Value Curve Study, cultural misalignment is a major factor that leads to M&A underperformance.
Why is cultural integration planning lacking in the majority of M&A deals? Perhaps it’s a case of pre-merger bliss. Optimism that their company cultures will mesh naturally has many organizations rushing to unification before careful planning.
For organizations that don’t plan well, problematic differences in company culture are inevitable. A thorough investigation into the respective company cultures is a wise pre-acquisition move. Each organization then has an opportunity to surface company cultural differences that could potentially cause strife. They can then work together to scope out the “what-if’s” and develop solutions beforehand. The newly-merged company then is empowered to respond strategically while strengthening their cultural alignment.
All too often, merging companies find themselves in the honeymoon phase and assume they are a perfect match. Unfortunately, that distracts focus on how the newly formed organization will operate — from systems to processes, and governance. This is a common misstep in M&A transactions that can weaken synergy right out of the gate.
Post-acquisition, the partnership can quickly crumble if key personnel are not involved in system and process integration planning. This may sound obvious, but apparently, it’s not. The 2018 Deal Value Curve Study by Grant Thornton reveals that due diligence is sorely missed for vital functions during M&A planning. In the study, only 22.6% of respondents believed there was due diligence on culture, followed by HR systems (22%), IT systems (19%), safety and environmental concerns (17%), and suppliers (14.7%). What’s astonishing is these are highly essential functions that can directly make or break financial stability and growth.
An experienced fractional or outsourced COO can develop tools and approaches that are sustainable and scalable for rapidly growing organizations. By leveraging expertise backed by a team of department leaders, assessments on the strengths and weaknesses of each organizations’ systems can be made. Surfacing this knowledge informs which systems should be kept, integrated, eliminated, or replaced.
An interim COO can also help organizations map out more than one possible scenario before pulling the trigger to select one or the other’s culture, systems, and processes.
Comprehensive cultural and system integration planning helps newly-merged organizations achieve stability and growth faster. Everyone wants a great start after a merger or acquisition closing. Discovering which systems tick like a well-oiled machine and which bleed inefficiency is essential to M&A success.