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The Problem With Mergers & Acquisitions
By Warren Friton
In today's ever changing business environment Mergers and Acquisitions are playing an ever increasing role in shaping the landscape of corporate America. The interesting point here is that upwards of 70% of these mergers fail to deliver on share holder expectations. The reasonable and prudent question then becomes why these mergers fail to deliver on the promised or projected results. The answer often times is quite simple; it is a direct result of the integration process not being carefully thought through with respect to the indirect impacts of changing a business unit. The mentality here is often that when company A buys company B that they rush in to change all policies and procedures to more closely meet their business model. At face value that would appear to be the intelligent course of action however little consideration is given to what they are about to change and the ramifications that follow. I have been following two of these companies as a case study for the last few months. Both of these companies shall remain nameless because the purpose of this article is not to embarrass anyone but merely to point out the reason that these mergers have questionable outcomes is due to the method of integration of the business units.
The first company is a shipping company who operate container ships amongst other endeavors. This company purchased one of its competitors which at the time of acquisition was a profitable business unit. During the integration process company A which purchased company B rushed into the process in an effort to complete the integration on the shortest possible time line. Evidently little or no thought was given to what the overall after affects of this would be. The irony here is that in the process company A first began the consolidation by switching its operating software to the one used by the parent. If all things were equal this would represent a prudent course of action however in this case the changes made were for them to turn their backs on a state of the art software package to implement their own which is an old DOS system. The end result here is more time on the part of the operators to perform their duties and results in an increase in manpower demands that will surely affect their productivity. This combined with the sub standard moral that has resulted from the approach taken during the integration will surely take its toll on the bottom line thus delivering lower than forecasted results for the share holders. The share holder meeting should be interesting to say the least.
The second company is an airline. These two business units who were both under performing, (in fact one of them was in bankruptcy court), were merged in an effort to construct a business unit that was viable. Again the integration was I believe not thought through due to the current climate within the two companies'. It is important to note that in this instance both companies were having financial difficulties and were grasping at straws I would imagine given the circumstances. The challenge for this business unit will be in forging a business alliance with the unions that will allow for the transition. If we were to take a historical view of this then it's safe to say that there will be major hurdles to overcome and success or failure will be the direct result of how these issues are handled. At the time of this article there is a significant amount of turmoil within these business units and the fight has begun. If not properly managed then the end result will be to the detriment of all. That should be an interesting share holders meeting as well.
First and foremost if you are part of the transition team during a merger then you may wish to consider a few things. If the business unit that you are acquiring is currently operating at a profitable level then before you rush into make changes I might suggest that you first evaluate what it is specifically that made the business unit a success. Evaluate the key components to see what it is that makes them work and why. Based on that then formulate a strategy to integrate the two units into one profitable entity. Often times during these evaluation periods you may well discover procedures or systems that operate more effectively and want to implement those practices within the parent group. The other interesting thing that I have witnessed during these integrations is that often in an attempt to consolidate operations the parent will move or transfer personnel that are going to be retained to other locations in an effort to "save money". More times than not it will actually have the reverse affect if the time is taken to measure this event. That is not even taking into account the effect on productivity due to employee unrest. This is one of the most important considerations during a merger. Never under estimate the importance of getting the employees at all levels on the train heading the right direction, the success of your endeavor might well depend on it! The other factor you should consider is what the residual effects of the integration are going to be, and there will be some. The question is will you recognize them as such and formulate plans to mitigate the damage or will you take the ostrich approach? Remember hope is not a business strategy.
About the Author
Warren Friton is a business consultant specializing in troubled companies and speaks to groups about the "Corporate Divide" he can be reached on the web at www.warrenfriton.com
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