Bucking the M&A Failure Trend

Why do M&As fail during the integration phase?

It’s widely reported that over 70% of M&A deals are unsuccessful, but with over 35,000 M&A deals happening around the world in 2024 alone (Mergemarket), this suggests that more than 24,000 of those deals may have failed to deliver. That’s shocking and hugely disruptive for everyone involved. 

Why do so many get it so wrong?

The more I read about mergers and acquisitions, the more I hear fragmentation. Not explicitly, but as an underlying current of what could be the big cause of failure during post-merger integration (PMI). People are fragmented because the leaders aren’t working in harmony. Processes are fragmented because the big challenge is unifying everything so that the new business is greater than the sum of its parts. Systems are fragmented because as we know, once you’re into using one particular system, switching to another is more than challenging. 

Too often, when two companies come together in a classic M&A deal, they are stitched side by side. Management reviews people, choosing who’s in and who’s out, then leaves it to HR and other functional heads to resolve the issues. It assesses the processes being used in both companies and either suggests for one to use the other’s, or again leaves it to functional heads to manage. It looks at systems in play, handing the almost impossible task over to IT to resolve two sets of requirements in the form of whichever system they deem best to use

This side by side stitching is like having two separate interior designers designing half a house each, then trying to bring both styles together. The end result could well be a total disaster.

All the while, teams are operating in a haze of uncertainty, unclear on direction, worried about what’s coming next and unsure if their work still fits. This uncertainty drains morale fast and when people start to disengage, cracks deepen.

Cohesion Must Come from the Top

How can we create more cohesion in bringing two companies together, in a way that is much more likely to work? Where can this cohesion come from?

The first place to look is to the leader of the business, the CEO. 

The CEO has been super busy managing the deal, finally getting it over the line. That is no mean feat! That’s success in phase two of the process, deal execution. Phase one being the strategic orientation, preparing the business for the deal, the due diligence which could take months or years depending on paperwork, processes, legalities etc. Phase two being the deal execution, numbers, negotiation, back and forth, it is stressful work. Phase three being PMI, just as big a challenge as the other two. Often CEOs hand the integration over to either third parties or functional heads. Baruch Lev and Feng Gu in their book ‘The M&A Failure Trap’ call this: 

“When the going gets tough, everyone leaves”

When a CEO hands the integration over to others and is not involved so heavily, this has negative consequences for the success of the future business. The CEO is vital during the integration stage of the process. Investopedia reinforces this in ‘Top Reasons Why M&A Deals Fail’

“Limited owner or leader involvement is highlighted as a key risk — specifically the lack of direct supervision and understanding during integration”

Boston Consulting Group says that it is imperative the CEO remains fully visible and totally committed. It’s not enough to delegate change, it must be lived and led from the top. The CEO needs credibility and the way to achieve this is to be seen by everyone as the orchestrator of the new joint business. Cohesion comes from the CEO.

What the CEO Needs to Lead

So what does this mean on a more practical level? What does the CEO have to do? 

The CEO needs to

• Stay involved, being the visible point of leadership
• Make the tough calls and understand what's happening across the business
• Engage with the leadership team and with customers
• Be in control of the whole integration

This means talk more, gain feedback and build up a strong information bank for challenging decision making. Engaging with the leadership team and with customers and gaining a strong understanding of the marketplace that they now operate within, contributes to the information bank. Tricky when it is unchartered territory and there is an expert standing by saying that they can do it all for you. That’s fine, they can help, but the CEO must be the knowledge point, the decision maker and the beacon for the new business.

Once the CEO takes this stance, they are far more able to make decisions from the top down, rather than the side by side stitching of the two companies we often see as discussed above.

The first priority for the CEO is to define or realign the overarching vision and mission for the new business. It may be that this was partly achieved during the strategic orientation and due diligence stage. However, in order to integrate the new vision and mission more successfully, there is a process which can assess whether it’s still a fit with the leadership team and customers. Having structured conversations with both, not only intensifies the direction of the new business making it more likely to be achieved, but also can engage both parties more deeply, ensuring they are inspired and motivated to make it happen. The new business needs an overarching vision and mission to capture the essence of the business as a whole in its new state, which enables everyone within it to engage positively and express succinctly and compellingly exactly what it does and who for. 

Culture Is the Final Piece and the Most Delicate

When cohesion comes directly from the CEO, the leader of the business, together with the overarching vision and mission, it powerfully brings the leadership team and customers onto the same page. We turn to values. The values of the new business hold the culture and behaviours within it. This is often said to be the most challenging part of an integration, as culture is something you cannot ‘fix’. It is embedded within the business. It is how the business runs and how people behave within it. Both businesses are more than likely to have very different cultures, so it is something that needs close attention in order to create a cohesive and harmonious way of working. Sometimes when one business imposes their culture onto the other business, it leads to resentment in the ranks and ultimately attrition. It’s a delicate process. When you find cohesion within the behaviours of your people and the values that they align to, then you are much more likely to succeed.

This top down approach is about making sure that the CEO is visible, credible and committed both to the integration and the new business as a whole. That they are responsible for the engagement and understanding of all the people within the company. That they gather feedback to make sure they are holding all the cards, making tough decisions and not handing over ownership, by leaving it to others to manage. It’s about ensuring that the new business has the right vision and mission to lead them to success, based on both business’s strengths and the space in the market. And it’s about ensuring that the cultural piece is managed delicately from the top of the values, cascading through to everyone in a manner everyone understands and believes in.

At this stage, the CEO becomes the creator, the orchestrator, the decision maker, the engager and the leader. Finding harmony, alignment and cohesion from the top down is vital in leading the new business to success. It is worth the effort, because this, I believe, is how to buck the M&A failure trend in the PMI phase and is how to create a new company designed by one designer, with one theme, which is absolutely beautiful to work within.

For CEOs preparing for or navigating integration. This is your moment. It’s not just about executing the deal. It’s about designing the business that comes next and that begins with you. If you want clarity, alignment and cohesion from the top down, connect with me to see more. I would love to support you.