Where Mergers Go Wrong: 5 Overlooked Missteps

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Harvard Business Review says between 70% and 90% of mergers and acquisitions fail, which is a startling statistic. When thinking about how to become part of the minority, the first step is to consider the common missteps those other businesses make so you don’t too. Some mistakes are obvious, but some are often overlooked.

What could go wrong in a merger?

Merger success can be predicted through hard data, market research and trends, and copious due diligence, of course. But because we are still dealing with human beings, some factors are out of our control. Although you can’t ever fully avoid surprises, sidestepping certain mistakes can help you achieve results more like Disney and Pixar or Sirius and XM, and less like Sears and Kmart or Quaker and Snapple. The most common mistakes include:

  • Insufficient preparation and due diligence
  • Not having a solid enough valuation
  • Neglecting your own business during the process
  • Not investing in a professional partner to advise you

Performing inventory and due diligence, working to accurately value each business, and paying close attention to your own company’s success through this endeavor might seem like no-brainers. However, some other missteps that can lead your merger down the wrong path are more frequently overlooked. Those are the ones we’re here to talk about today.

Where mergers go wrong: 5 overlooked missteps

1. Not reading between the lines.

Sometimes what’s written in black and white on paper doesn’t always tell the full story. No matter how much due diligence you think you have performed, do more, and don’t limit it to burying yourself in documents and data. Businesses looking to merge or acquire often see what they want to see while ignoring what’s hidden or waiting for you to uncover.

Brand identity, ideology, and cultural outlook (which we’ll cover more below) differences can go unnoticed when you don’t look for them. Talking to as many people as you can is an underrated yet critical step during a merger. And remember, what goes unsaid can be just as important as what is said.

2. Underestimating pride and people.

Relationships, skill sets, and knowledge are all elements that are vital to a company’s success—and they all come directly from people. Pride, ego, and fear can often keep people from trusting one another, truly listening, openly sharing information, and being open to new ideas and processes.

In particular, pride can prevent leaders from seeking new information and trying to understand how the other business sees success and where any trepidation might lie. Human beings can be unpredictable, but we all have one thing in common: we seek to be heard and understood.

3. Lack of cultural and customer alignment.

You know the culture of your own business like the back of your hand. You’re also tuned into who your customers are, what they need, and how you meet that need.

A decision was made to move forward with a merger because you both see commonalities that appear on paper to fit together. But often, companies make assumptions about how well-aligned their corporate culture and customer bases really are. Just like we described above, people aren’t boxes to check off. That includes two types of human interaction:

  • How employees interact with one other and the C-suite
  • How your two brands interact with their customers.

When two cultures and customer types clash, a cohesive brand becomes at risk.

4. Overestimating synergy.

A primary goal of merging two companies is to create one combined business that’s better than two separate ones, from the breadth of the offerings to the bottom line of the balance sheet. However, when the combined sum of the parts is assumed to be much higher than it actually is, synergy has been estimated incorrectly. And when your merger doesn’t perform as expected—often measurable through market share, customer base size, and financial health—it becomes clear something has been miscalculated.

5. Not being attuned to market trends.

Other mergers and acquisitions, industry competitions, development of technology, supply chains, overall economic health, and overall stock market behaviors can all impact the success of your merger.. When portfolio moves are always being made, it’s critical to have someone you trust who has their pulse on market trends and when the best time is to buy, sell, and merge. If you don’t, you might be hit with obstacles you never saw coming.

What can you do to prevent these mistakes?

  1. Dig deeper. Approach any merger with a curious mind and a hunger for knowledge and information. The more you want to know, the more you’ll learn, and the better equipped both of your companies will be.
  2. Take your time with the people component. Taking inventory of all the people in both businesses isn’t a process that should be rushed. You can also usually learn a lot more from the people than you can from the paper.
  3. Look for differences. Looking for the things your two companies have in common is easy, because it validates your decision to move forward with the merger. When you look for where you contrast, though, you can start to actually uncover and tackle potential problems that might arise.
  4. Take the market pulse. Factors you haven’t even considered can make a major impact on the success of your merger. Make sure you have someone who knows how to read and predict market activity and trends.
  5. Find an advisory service you can trust. A great advisory firm has a team of experts to support you through every phase of your merger, from conception and strategy to closing and transition.

By partnering with Align you can avoid all of these merger mistakes and be confident you’re moving your company in the right direction. Your life’s work is important to us. Through our strategic service approach, we can help ensure your organization generates significant enterprise value.

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