Eight deadly sins of mergers and acquisitions

Global M&A advisers, especially investment bankers, are doing extremely well consuming trillions of dollars in deals as a result of cheap debt, ambitious company executives, and a desire for expansion (Financial Times [FT], 12/21/2006). The agreements announced in 2006 have exceeded those consummated in 2000 by more than 16% for a total of $ 3.9 billion. According to Dealogic statistics and reported by FT, the top ten investment bankers, including Goldman Sachs, Citigroup, JPMorgan, etc. they have been working on deals worth $ 7.341 billion in 2006. The media provides extensive coverage of these deals. It is common knowledge that once these mergers and acquisitions have been consummated, bankers and corporate executives reap substantial financial rewards, as well as investors in the acquired companies. However, the media does not provide the same level of coverage on what it takes for these corporate marriages to be successful. Reporting on the challenges of post-merger integration (PMI) is critical. For these mergers and acquisitions to be successful, corporate executives must avoid eight classic mistakes (that is, deadly sins).

During the dot-com boom and when mergers and acquisitions were on the rise in 2000, Monnery and Malchione reported the 7 classic mistakes (also known as “7 deadly merger sins”) that M&A executives make based on their analysis of 200 mergers (Financial Times management point of view, February 29, 2000). They concluded that the most common reason for failure is underestimating the difficulty of a successful post-merger integration (PMI). In an FT article titled “Point of View: Why Mergers Are Not for Hobbyists …” (FT, arrived February 12, 2002), Knowles-Cutler and Bradbury reached the same conclusion after reviewing a study. Deloitte and Touche on mergers and acquisitions. In my book, “Blueprint for a Crooked House” (www.iloripress.com), I used the 7 classic mistakes to analyze and report the failure of the global joint venture between AT&T and British Telecom; and added the eighth mortal sin: inadequate attention to the client’s needs.

In response to a question from Bernhard Klingler, Linz, Austria on how to handle post-merger challenges, Jack and Susan Welch recently reported on the Six Sins of Mergers and Acquisitions (BusinessWeek Online, October 23, 2006). Welch’s six sins are a subset of the eight classical errors. It’s important to remind corporate executives of these classic mistakes so they can avoid them and reduce financial losses to stakeholders and the economy. The eight deadly sins excerpted from my book, Blueprint for a Crooked House, are reviewed below:

1. Assuming that all partners are equal. “Mergers of equals” is a myth. Someone needs to be in charge to resolve deadlocks that may be impossible to do in a 50-50 society where it is unclear who is in charge.

2. Use a one-size-fits-all approach for each business unit. Each new business unit has its unique cultures. The combination of the culture of the new organization with the culture of the acquirer must be done carefully.

3. Manage organizational change without leading. This is what Jack and Susan Welch refer to as “taking bold steps with integration.” The acquiring company is encouraged to get down to business while it’s hot: complete the integration process within 3 months of the acquisition while the participants are still excited and motivated about the new opportunity.

4. Paying too much attention to cost savings as a top strategic opportunity. Don’t be too desperate for the acquisition to fall into what Jack Welch calls a “hostage backwards” situation.

5. Expect to get most of the benefits by the end of the first year. This goal will be more difficult to achieve if the acquirer pays too much for the merger (ie 20% or 30% above the market price, Jack Welch).

6. Believe that the Organization cannot stabilize until all the facts are known. This belief can lead to what Jack Welch calls the “conqueror syndrome”, a situation in which the acquirer installs his own people in all critical positions. This defeats the main objective of the merger, which is to fill a strategic void. Management must realize that if its people have the experience to grow the business and fill the strategic gap, they may not need the acquisition.

7. Declare victory prematurely and not follow through on promised organizational changes.

8. Failing to consider the impact of customer reactions to the merger. In a study sponsored by Business Week and conducted by the University of Michigan and Thomson Financial Corporation on the American Customer Satisfaction Index, it was found that 50% of consumers report that they are less satisfied two years after a merger. “It can take years for companies to change customer sentiments and stop losses” (Emily Thornton, Business Week, December 6, 2004, pp. 58-63).

Bottom Line: Whether hostile or friendly, company executives and shareholders should seriously consider the impact of PMI on mergers and acquisitions. The Sarbanes-Oxley Act, which requires more disclosures about the performance of the board of directors and executives of public companies, can help address some corporate governance issues, but until stakeholders address the eight classic errors described above, we will continue. experiencing significant failures. in M&A activities. As mentioned above, M&A advocates are doing very well financially, but for the sake of customers, employees, and other stakeholders, executives must invest more resources to avoid the Eight Deadly Sins and ensure the success of post-merger integration. .