Mergers and acquisitions is a popular growth strategy implemented by firms. It entails one company purchasing another company in order to become more competitive or gain advantage while entering a new market.
Whenever companies announce M&A deals, the news is always received with great excitement by the general public. However, many fail to recognize that it brings both opportunities and challenges to the acquiring organization. I merger can either build an organization by creating desirable synergies or break the company by bringing confusion. For that reason, we highlighted 5 reasons why M&A agreements fail to meet the objectives they were created for.
1. Poor integration of corporate culture
The merging organizations prior to the merger have their own corporate culture that determines the values, and way of doing things within the organization. Since every organization has its own culture, failure to create a shared culture between the merging companies creates an incompatibility problem that might break the merger. Majority of mergers that have failed in history failed because of lack of proper cultural integration.
2. Lack of Proper communication
It is important to communicate the reasons for the merger to all organization stakeholders up to the lowest ranking employees. Frequently, top managers decide to undertake a merger without informing the lower and middle level employees leading to resistance. These employees are want to feel appreciated and informed whenever such decisions are made. The merger faces challenges especially whenever, it adversely affects the interests of key employees.
3. External factors such as changes in the business environment
The merger between bank of America and Countrywide in 2008 failed as result of the general collapse of the financial sector which lead to the great depression. External factors are beyond the control of managers and are highly disastrous.
4. Lack of proper strategic fit
Mergers create synergistic benefits when strategic fit between the merging companies is desirable. Proper strategic fit enables organizations to increase profitability through reduction of overhead costs, and maximization of economies of scale. Lack of proper strategic fit occurs mainly where the merging companies operate in different industries. The merger between HP and COMPAQ in 2004 failed because of a strategic blunder although both companies operated in the computer industry.
5. Leadership Failure
The initiators of the mergers hold the vision of the merger like no one else. They understand the reasons why they thought a merger was the best strategic tool. These people should provide assistance to the implementation team to avoid loss of focus. Failure of leaders to provide guidance during implementation causes a failure of the merger to meet its core objectives.