M&A: An Unatural Act?
M&A has often been referred to as one of the most unnatural acts in business. There has to be some truth to this characterization given the abundance of data that indicates that between 50% and 80% of all mergers and acquisitions fail to live up to the intended goal.
The reason cited most often for why M&A goes awry is the failure of planning for and implementing correctly the post merger assimilation of cultures, people, values, attitudes and styles . . . what is called the soft side of the equation.
It's an odd and intriguing twist of management fate that one of the most critical elements of a company's long-term growth strategy is governed upside down. Most of management's attention is focused on the upfront number crunching, due diligence phase of the project, which evidence suggests is one of the least likely areas where M&A runs afoul. The back-end—the post acquisition assimilation phase of the M&A—where research suggests 65% of the failure occurs and where management's experience and firm hand is needed, is what gets the short shrift.
Let's be fair and not put all the blame for these troublesome failure rates on post acquisition blunders. There are other textbook culprits eager to contribute to this dilemma, many of which are well-documented and need little embellishment here, to wit:
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- Flawed corporate strategy by one or both companies.
- Executive hubris.
- Desperation and/or fear.
- False expectations of and subsequent proof of unrealized savings.
- Mischievous intent and documentation.
- Changing market conditions.
- Et al.
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The consequence of failure for small-to-midsize IT services firms—without the financial reserves of their larger brethren, who can withstand an M&A miss or two and emerge humbled and bleeding but not broken—can be devastating. The question for these executives should not be whether to embark on an M&A strategy, but how to do it right.
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