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Internationally, the past performance of M&A activity results is quite poor. Multiple studies analyzing the last 30 to 50 years of M&A activity document a business success rate of less than 30%. One McKinsey study of 30 years of M&A activity concluded that 77% of acquisitions failed to meet their intended business objectives, over half failed to recover the documented costs of the acquisition and roughly, a third later divested or completely shut down. Any company’s own data, while maybe better than international averages, may still show a less than desirable success rate.
Another series of follow-on studies identified organizational culture clash as the primary reason for failure in over half of the thousands of acquisition failures that have been studied. We define culture clash as disagreement between people in the merged or acquired organizations concerning how to go about engaging in and managing the business. These types of clashes consume increasing amounts of energy and time to get things done and turn the focus of significant parts of the organization from actually “doing” the business to arguing about how it should or should not be done. Internal issues/arguments consume ever more resource leaving less and less focused upon the customer and actually performing the work. The intention of this document is to allow any company to increase its acquisition success rate to the 60% to 70%+ range.
Vector Group’s , M&A Roadmap for Success, evolved from an original design for a specific client to more clearly define and leverage the role of a properly staffed, skilled, and focused Human Resources team in driving the success of present and future acquisitions and bringing desired results. Undoubtedly, somewhere in the integration effort a group, if not HR than some other entity in the Integration team must be in a position to lead aspects of the acquisition process centered on the people issues (organizational culture) that so oftentimes cause failure. The people strategy for the Roadmap poses Objectives and Deliverables that will identify and surface possible challenges with intended outcomes. HR remains as an artifact in this document but other groups or teams from other functions who may direct M&A activities may easily be substituted.
The Roadmap is a guide to the acquisition process beginning with Target Identification of potential new businesses to buy and ending with the successful cultural integration of the acquired company. Just as a building plan would work, the Roadmap brings a logic and a means to successful creation of a new entity. Be aware that the Roadmap is not prescriptive but does offer numerous tactics and tools that an integration team can use in assessing the potential risks and increasing the potential benefits of a specific acquisition. Portions of the Roadmap do provide some systematic directions but overall brings a way of thinking and doing in terms of bringing in a new organization to any company.
The original Roadmap identified nine phases in the process but we can easily customize this generic model for any particular company who has a dedicated team for mergers and acquisitions:
Each of the nine phases starts with a description of the phase followed by short sections covering Business Perspective, Business Deliverables, HR Objectives, and HR Deliverables. (Note: We arbitrarily choose Human Resources [HR] who may have specific responsibility in dealing with the “people issues.”) A general section (Hints) follows these furnishing guidance and subtleties involved in successfully completing each phase. Additionally, we provide a descriptive listing of potential methods, processes, and tools to support the activities of the phase and deliver desired financial results and also deal with the people issues.
Each phase also outlines critical roles and responsibilities of those involved. We believe the use of an identified Integration Manager (IM) is crucial for the success of the merger or acquisition. HR (or if not HR whomever has responsibility for the people issues) must work in tandem with the IM from the time he or she is chosen (Phase III) to support and develop the IM. The IM plays a critical role in making the integration work. Each phase has deliverables but just as importantly, each phase has references to documents and tools that will be of extreme benefit in achieving the goals of those deliverables.
In our view and experience in developing this Roadmap, organizational culture clash is completely avoidable. Our consulting firm’s experience leads us to believe that there are no two organizational cultures that cannot be successfully integrated as long as a proper Due Diligence, including culture issues, is performed and based upon that analysis a robust and prescriptive integration plan is developed and implemented in a flexible and responsive manner. Differences in culture (“the way we do things around here”) can be identified, brought to the surface and dealt with in an appropriate manner thus ensuring the success of the integration. Most challenges that occur are fairly predictable and can be mitigated appropriately bringing desired results.
The recommended activities and tools are, in most cases, highly flexible and scalable meaning they can, and should, be easily adapted to fit the particular issues involved in any acquisition—be it a 15 person company highly focused upon one activity or a 20,000+ person company with multiple and diverse business activities. ©Vector Group, Inc., 2015
(Note: I originally published this on LinkedIn on 28 January 2015 but thought some may benefit from seeing it here)
Gary W. Craig is Managing Partner and COO for Vector Group, Inc. You may reach him at firstname.lastname@example.org. Vector Group is a global consulting firm specializing in systematic organizational diagnosis and interventions to ensure that corporate strategy, culture, and infrastructure are aligned to achieve breakthrough success. Visit our website at http://www.vectorgroupinc.com or call us at (800) 566-0877.