Research has shown that more than 50% of mergers and acquisitions fail, yet mergers between two companies happen quite often for various potential advantages in the world of business. In most cases the basic goal is to grow a company’s portfolio, enter a new market or to acquire new talent. However, despite these perks, mergers still fail due to a variety of factors: clashes of personalities and priorities between companies, different company cultures and difficulties within leadership. One of the most troublesome issues with mergers and acquisitions is the failure of management to maintain control of a new and larger organisation, understanding and adopting its previous culture and attempting to fill all the roles of the previous management.
One reason for failures in M&A is the misunderstanding of a company’s culture and its roots of success. This was apparent during Quaker Oats’ acquisition of the Snapple beverage company in 1994. With the assumption that Quaker could repeat their success with the management of their Gatorade beverage, Quaker failed to fully realise Snapple’s target audience, where it sold well in smaller shops such as convenience stores, gas stations and independent distributers. Instead, Quaker pursued deals with larger supermarkets and retailers, while also putting out market advertising that did not take its culture into account. Due to these decisions, rivals took over Snapple’s shares in the market forcing Quaker to sell Snapple. These are the types of factors that buyer companies need to look into in order to fully understand their acquisition; these mistakes could have been avoided if thorough market research had been carried out on Snapple’s, as well as a deeper look into their business culture.
HR is also a key factor in the management of a merger transition. Many M&As can fail due to the loss of valuable talent at a company. In 2014, around 93% of European executives reported fears of losing top talent within a year of a new merger. This can happen when doubt is cast over the remaining employees regarding their future at a newly merged company, and it can be prevented by hiring a transition manager in charge of HR to deal with potential fear among employees. This also links back to understanding a company’s culture, which plays a part in keeping company morale up during the transition period. Top talent at a company will more than likely be paying close attention to the merger’s future success with the plan of abandoning a company in the worst case scenario. Concerns about their future at a company also means 50% of key employees leave in the first year of a new acquisition.
One way to alleviate the fears of merger failures and reassure employees is to address the ownership structure of a merging company before the deal is done. In 1993, Volvo learned this lesson the hard way when it merged with Renault. The deal left Volvo with a 35% stake in the newly formed company, while Renault was primarily owned by the French government. Concerns rose with the possibility of Volvo essentially becoming a French owned company. Fears followed, with Volvo being a cherished Swedish company, that the new merger would ignore the needs of Swedish Volvo employees. In the end, Volvo employees revolted, forcing the CEO out of the company and both car companies suffered with leadership resignations. This disastrous merger was ultimately caused by unexpected ownership and public dissent, both of which could have been avoided through better communication, planning and maintaining cultural alignment.
What companies can learn from these examples is that careful planning and consideration, and a good transition team are all necessary to account for all the possible factors in a potential merger. Taking into account cultural values, key market information and communicating clear plans can make all the difference to ensure a smooth merger with all of its possible advantages.
Edward Mah