Didyou know that over 60% of mergers fail, according to 2016 research from L.E.K.consulting analyzing 2,500 mergers.
Thisseems almost impossible on the surface. Before a merger ever becomes official,there are countless hours of research, analysis, prep, financial statementreview, and quite possibly hundreds of meetings of key stakeholders about whatthe deal will mean. There’s a lot of preps.
Buteven with all that prep, over 6 in 10 are destroying shareholder value.
Howis that possible?
Well,it’s entirely possible -- and factual, as we’ve shown -- because the prep focusis misguided. It’s too much about the financials and not nearly enough aboutthe people.
Thinkabout it in these simple terms: usually, organizations of any size try to scaleup with a sales function at the very least. So, whenever there’s anacquisition, by definition you’re going to combine two sales functions -- andoften two marketing functions, two operations functions, etc.
Thoseare people. The people had different processes and workflows and relationshipsand managers, and ways stuff gets done. Now you’re combining those two unitsinto one, essentially. That’s going to change a lot about the people, how theyfeel, how productive they are, etc.
Andthe people are what drive the business. The financials are what happens becauseof the people. So, you need a way to figure out what’s going to happen with thepeople and the teams on any investment deal.
As HBR notes:
Asour research has shown us, the core of the problem is not the high number ofM&A deals in itself, but rather that too many executives bring insufficientdiscipline to the evaluation process that fuels these deals — as a result, theyoften get deals wrong. For instance, despite the importance of accuratelyidentifying and calculating company synergies, diligence work frequentlyresults in an overly optimistic view of the revenue synergy opportunity. Oftenthe weakest assumptions involve estimates of how much additional revenue thecompanies can generate when combined. This, in turn, leads bidders to overpay.
Similarly,Forbes has noted:
WolffOlins’ recent leadership study backs up these points. It indicated a shift froma concentration on outputs like sales to inputs like creating and buildingculture. This is alighed with the power ofbuilding winners over trying to win. The CEOssurveyed talked about the need to hold their reins looser with the newgeneration, about the need to be more comfortable with ambiguity as they lettheir employees take greater leadership roles.
McKinseyhas even done a graphic on cultural effects in mergers:
Inshort: you can’t just focus on the financials and the top/bottom-lineimplications of the deal. Those are important, but they can’t be the be-all andend-all -- because if the people don’t align and the teams can’t mesh, thoserevenue projections are going to be off anyway.
Wehelp with this by using Opusuna to look at the people side of investmentopportunities, so that you can be more confident in the eventual outcome. Feelfree to contact me and learn more! I love helping people get these deals rightby understanding the human side of the equation.