WHY MERGERS FAIL

Why Mergers Fail?

Why Mergers Fail?

With the recently announced mergers involving Procter & Gamble and Gillette, and SBC and AT&T, it's time to ask one of the most common questions about mergers: What does it take for a company to be successful, post merger?

After all, many mergers ultimately don't add value to companies, and even end up causing serious damage. Studies indicate that several companies fail to show positive results when it comes to mergers. Noting that there have been "hundreds of studies" conducted on the long-term results of mergers, researchers estimate the range for failure is between 50% and 80%. 

Companies merge and end up doing business on a larger scale, with increased economic power. But the important questions are whether or not they gained competitive advantage or increased market power. And that will be reflected in the stock price. The truth is mistakes happen. The accepted data say that most mergers and acquisitions don't work out.

According to Robert Burner, the kinds of problems companies face with mergers range from poor strategic moves, such as overpayment, to unanticipated events, such as a particular technology becoming obsolete. You would hope these companies have done their due diligence, although that isn't always the case.

Aside from those extremes, however, many analysts view clashing corporate cultures as one of the most significant obstacles to post-merger integration. In fact, a cottage industry of sorts has emerged to help companies navigate the rough terrain of integration -- and especially to help them overcome the internal inertia that comes with facing change.

Robert Burner views corporate culture as one piece of a much larger puzzle. There are lots of buckets to carry," he says, adding that it's important that much of the transitional planning take place before the deal is closed. Everything from apprehending antitrust hang-ups (some companies proactively submit proposals for divesting to the government to decisions about the physical plant have to be considered along with employee issues.

One key stakeholder all seem to agree needs attention, though, is the customer. For Joanna Robert Burner, an executive leader in GE's program with a background in M&A, the degree to which customers are part of the integration plan depends on the degree to which company processes are integrated with customers before the merger. One thing is certain, though: Customers must be kept informed. You need to tell customers about your merger even when it's seamless; in doing so, a company is simply confirming its sensitivity to customer needs.

According to Robert Burner, the customer should perhaps be viewed as the biggest stakeholder and treated as such. If the customer is a large one, I'd say they should hold hands with top executives through the transition. At the end of the day, that's the cash. As an example, he sites a merger between two tech firms in Silicon Valley, both of whom had IBM as a leading customer. When the merger was announced, they both lost IBM's business. IBM wanted to know why they were not told ...