Your daughter, the newly minted college graduate, asks, “how do mergers work?”. Halfway through your explanation you realize you’re not as knowledgeable as you thought. She asks, “what are the most frequent source of failure in M&A?” Deciding to research together, here’s what you two discover:
What are the Most Frequent Source of Failure in M&A?
The most frequent source of failure in M&A is corporate culture integration. Humans and corporations are creatures of habit and the change of cultural assimilation through a merger or acquisition can adversely affect operations culminating in reduced profitability. Here are the contributing factors to the answer to, what is the most frequent source of failure in M&A?
Subjectivity – Culture is a deeply ingrained intangible within a company. It is not a quantifiable metric or a tangible operational measurement which makes it hard to manage and assess relative to key performance indicators (KPI).
Change Resistance – Management and staff are often fearful of culture change because it disrupts the emotional attachment to one’s organizational comfort zone. "We've always done things this way” can be a difficult attachment to alter. Cultural integration resistance is the fear of change masquerading as employee skepticism, fear of reduced wages and layoffs, or outright acquisition opposition.
Elusive Complexity – The subtle nuances of cultural integration are simultaneously complex, elusive, and present. It is the pervasive environment where working relationships are formed, and decisions are made and implemented. Failure to recognize the importance of complex cultural subtleties jeopardizes workplace morale, and ultimately productivity.
Patient Progress – Patience and vigilant ongoing value alignment efforts are required for successful cultural integration. To rush the process or not dedicate sufficient long-term resources is to breed tension, foster resentment, and invite alienation.
Leadership Changes – Leadership must be able to adapt their approach to the changed cultural fabric of the merged company. To do so requires diverse communication practices, an accommodating decision-making structure, and a willingness to listen.
Morale and Engagement – What are the most frequent source of failure in M&A? This point has been touched on before and bears mentioning again due to its importance. Cultural change begets fear, uncertainty, and anxiety. These negative responses adversely impact workforce morale and oppress engagement. If cultural integration’s negative externalities are not acknowledged and successfully navigated the merger or acquisition is destined to experience employee attrition, productivity decline, and deteriorating profits.
Subjectivity, resistance to change, complexity elusiveness, process patience, leadership challenges and the impact on morale and engagement are the blended mosaic of cultural integration. What is the most frequent source of failure in M&A? Corporate assimilation is the hardest and most frequently failed aspect of a merger or acquisition. Its extremely low likelihood of success is the reason why Warren Buffett, famed value investor and chairman of Berkshire Hathaway, mandates all Berkshire acquisitions retain their original, individual cultures.
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