HEADLINE: Seven Deadly Sins Why Half of All Mergers are Unsuccessful
Combinations Fraught With Pitfalls, Integration is Key, says Towers Perrin
DATELINE: NEW YORK, April 22
BODY:
Why do mergers seem to fail at such an alarming rate and what can management
do about it?
Nearly half the announced mergers fail and a similar portion of
completed acquisitions are eventually divested, according to consultants from
Towers Perrin an international management consultant firm.
So many of these mergers and acquisitions -- deals that promised
excellent results, on paper -- ultimately succumbed to one or more of M&A's
Seven Deadly Sins:
* Turmoil: lack of clear strategy and defined plan of action, before the
fact
* Alienation: forced amalgamation between disparate cultures
* Punishment: short-sighted changes in rewards strategies and benefits
and destructive changes to positive and productive work
environments
* Dissolution: key talent departs for greener pastures
* Dissuasion: lack of attention to morale, mores and behavior in
announcing new long-term goals
* Disappointment: failing to deliver on stated goals and objectives
* Chaos: declines in production, sales, customer service and net income
in the first 100 days
"With some 50 percent of all combinations failing and 30 to 50 percent of
all acquisitions eventually divested, it's incumbent on the management of the
two companies to do everything in their power to get it right," said Jeffrey
A. Schmidt, a managing director with Towers Perrin and leader of the firm's
general management consulting group.
"While a company stands to lose much in an unsuccessful merger or
acquisition, a success can catapult the new company into a global leadership
position," he said.
Planning Makes the Difference
"The difference between success and failure lies in taking a risk
management approach to planning and implementing a combination," Schmidt said.
Risk factors fall into three categories:
* Competitive Risks: dubious strategic foundation, competitor poaching
of key customers and distributors, dissolution of
strategic supplier alliances;
* Economic Risks: premium paid to close the deal too high, need to spin-
off or liquidate too much, over-optimism regarding
potential synergies;
* Organizational Risks: integrating workforce (including downsizing),
culture and organization, rewards/benefits,
arrogance and over-control by the dominant
management, inability to manage combined entity,
adverse consequences from reversal of policies
and practices."
"Because management styles often clash and rivalries can build among
managers at all levels, the integration of separate corporate cultures must
begin in earnest within the first 100 days," Schmidt said, "by addressing and
setting in motion the key elements of the integration plan."
Crucial First Phase
Actions taken during the first 100 days immediately following the
announcement of a merger or acquisition play strongly to the ultimate success
of the transaction. Unexpected, seemingly random -- and usually unwelcome --
events can occur and are often quite destructive, Schmidt said.
The first 100 days of transition is a time to assess both companies'
strengths and weaknesses, and which 'best practices' are worth retaining,"
Schmidt said.
In this, successful integrators maintain continuity, they coordinate all
actions and policies and communicate changes in management systems, operating
practices, and administrative processes to the proper stakeholders.
* Suppliers and customers need to be assured that relationships and
commitments will be upheld and must trust that they will be notified
when customer policies and practices do change.
* Employees are key to the success of any business. Corporate values
must be established and reinforced and, while leadership changes can be
expected, key personnel should be encouraged to stay on through the use
of incentives.
* Maintaining productivity and morale is paramount. Management must
communicate its plans to all employees, as clearly and completely as
possible.
* Systems need to be integrated as quickly with the objective of aligning
and merging management systems and operating practices right away.
Mapping and Implementing Change
As the blueprint for the new company's sales and distribution, production
operations, and administrative infrastructure is developed, associated
processes must be coordinated and rationalized. Thus, the integration team
has a clear picture of the new enterprise's business model -- what it will
look like, how it will get there, and what the implications are for all
stakeholders.
Schmidt suggests appointing stakeholder champions, each representing a key
stakeholder group -- customers, suppliers and distributors, employees,
community representatives and investors -- whose function is to ensure
explicit consideration is given to respective requirements and sensitivities.
Measurable Integration
Under a well designed, thoughtful plan, companies improve the odds of
realizing synergies that will make the new organization stronger and more
competitive.
"There is an economic calculus at work in a merger or acquisition where
the premium paid to consummate a deal along with transaction and
implementation costs must be recovered," Schmidt said.
Adherence to a comprehensive risk management-based integration plan
greatly improves a company's chances of beating the odds and being among the
relatively few successful mergers and acquisitions, Schmidt concluded.
"Expectations will be fulfilled and full value achieved."
Towers Perrin is one of the world's largest management and human resource
consulting firms. It helps organizations improve performance and manage their
investment in people, advising on human resource strategy and management,
organizational effectiveness, compensation, benefits, and communications. The
firm has more than 7,900 employees and 82 offices in 75 cities worldwide.
SOURCE Towers Perrin
CONTACT: Joe Conway of Towers Perrin, 914-745-4175, or jconway@towers.com;
or Dan Charnas of The Torrenzano Group 212-681-1700 ext. 117, or
decharnas@torrenzano.com
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