Mergerstat, a leader in U.S. mergers and acquisitions research, reports that over 9,400 major M&A; deals occurred in the year 2000, with a total deal value of over 1.4 trillion dollars. That's a lot of moolah! Yet, study-after-study indicates that the majority of M&A; deals damage rather than create shareholder value:
* KPMG International, a worldwide consulting services organization, indicates that more than 8 out of 10 deals fail to enhance shareholder value because of poor planning, execution, or both.
* A PriceWaterhouseCoopers survey reports that most of the M&A; deals under-performed the expectations that drove the deal and justified the price.
* The November/December,2000 Harvard Business Review indicates that "an astonishing number of mergers and acquisitions fail - more than half, by some estimates - which makes them a costly proposition strategically and financially for the companies on both sides of the deal."
And although most of the M&As; that make headlines are very large companies, small companies merge often, as well. We see dot.coms bought by larger ones that want their products, and retail stores acquired by major chains. There's a lot of moolah out there with the potential for mush!
M&A; failure typically starts at the beginning of the process. Inadvertently, unseasoned executives neglect M&A; strategy objectives as they morph into dealmakers, riding the high of an exciting opportunity. The gauntlet is thrown down and the challenge of the deal becomes the primary focus.
Today's M&As; are about more than negotiating physical and financial assets. Given the high number of M&A; failures, it is increasingly important that executives learn how to manage the people-side of M&As; in order to secure M&A; success.
Why?
* The Bureau of Business Research reports that organizational cultural problems are more likely to derail a merger than are financial factors.
* HR Professional Magazine reports that employee problems are the cause of as many as half of all merger failures.
* The PA Consulting Group's post-merger integration study, sited in the UK Financial times, indicates that it is "not uncommon to see companies riding roughshod over people, causing damaging culture clashes and diminishing employee commitment."
* A Hewitt study demonstrates that companies are spending more than they expected on M&As; because of unaddressed people issues. Integrating organizational culture, keeping employees focused and integrating employee programs are critical concerns.
The importance of addressing people-related issues is a function of how two aligning companies will be combined. If the acquired business will operate independently, then integrating people programs and processes is less important. If the two organizations will be totally combined, the people items become a true priority. The majority of companies fall somewhere along the continuum.
Regardless of where your firm stands on this continuum, a well defined due diligence, integration and post-integration people strategy is key to improving M&A;'s success.