Failure of corporate deals has been a recurring problem in the world of mergers and acquisitions. Two companies merge for several reasons such as, expansion of market share, reduction of operating costs and acquisition of new lines of distribution or technology. But this synergy match involves a clash of personalities and priorities and that’s what ends up in failure of such corporate marriages.
Recent news about two big merger/acquisition deals came as a reminder of the failure of such corporate deals. The failed deal between PPG, a massive American chemicals company and its European competitor, Akzo Nobel was the first on the board. The continuous efforts of PPG to buy its rival have been in vain. Akzo’s board of directors have rejected all bids made by PPG in order to independently increase its shareholders’ value.
Another deal between a US satellite technology startup, OneWeb and a satellite manufacturer, Intelsat added to the list of such failures. The deal was backed by Japanese telecom giant SoftBank, was unsuccessful because of lack of support and unwillingness of investors to support the deal.
But, some reports say that political barriers are a major reason for the collapse of such partnerships. The takeover of Akzo, a Dutch company by an American company was not exactly supported by the Dutch political establishment. Politics is a major reason for such disastrous failures.
According to Thomson Reuters data, the run of failures in the pursuit of audacious mega-mergers have been growing with time (Edition.cnn.com, 2017).
What is the key factor that makes up a successful integration?
In the M&A world, the most often asked question is that why do acquisitions go wrong? Why do fewer deals succeed than the one that fail? I think some really essential factors that must be take into account, are ignored by the deal executives. One of the most important one being: Culture. The culture of a company represents not only its people, but also the success of the company. When we buy a company and transform its culture completely, we are actually disrupting the company’s success and ongoing operations.
The due diligence process is very important from this perspective and the buyers, while investigating and verifying the company they intend to buy, must take into consideration the company’s culture and its people (Jacobsen, 2017).
Acquirers, generally are enamored by the ability to gain the associated technology and information, and they tend to forget the more fundamental issue, that is, the personality of a business. The essence here is that, long-term profits of a company depend on the people of the company, rather than the data and the numbers that determine only the short-term success.
The crux is that when the cultures of two companies merge well, value gets created. Objectives, strategies and implementation are all derivatives but the battle can be won on the grounds of the cultural integration (Forbes, 2015).
Is there really a thing such as merger of equals?
This is another question that is generally debatable in the M&A world. Equals implying companies of a similar size combine, with neither a buyer nor a target . As stated by the chief executive of the strategic communications firm Sard Verbinnen, George Sard, “Mergers of equals have long been among the most challenging deals from a communications perspective, because of the internal politics involved and because nobody believes there really is such a thing.” (Forbes, 2014).
I think the corporate culture is the the root cause of any merger’s failure or success. The due diligence process should involve clear choices about the behaviours, relationships, attitudes, values and environment of the combined entity. Not all factors in a merger/acquisition are controllable. I strongly believe a great, synergized culture can definitely help protect a company against bumps and bruises.