Lessons From a Disappointing Merger

Last week I described a company which did an acquisition that looked great on paper but failed in practice, and the CEO wanted to know why, and what he could learn to avoid the same mistake in the future. My partners and I discovered that the acquisition made sense logically and financially. It didn’t make sense culturally. The cultural "fit" was awful. We proposed several recommendations which are applicable to any company. In the interests of space and confidentiality, I’ve selectively chosen and then condensed them to form the following list: • In any acquisition, do not underestimate the cultural integration challenge. • What happens after the deal is inked can make or break the strategic and business logic behind it. • The acquiring firm must develop a realistic and specific plan for the integration challenge before inking the deal.• Before a deal is finalized, due diligence should include the “fit” for cultures, values, management styles, how business is conducted, and the personal and professional goals of the key players in the acquired firm. The investigation should include a checklist for data and evidence to look for. • If, after all this work is done, there is serious reservation about the cultural fit between the two companies, don’t do the deal, even if the numbers look attractive and even if the deal looks sexy on paper. (This, by the way, is the “M.O.” of companies like Cisco Systems and Washington Mutual, which have a higher-than-average success rate with their acquisitions). • If, after all the above is done, the acquiring company still has screwed up and purchased a company with a lousy fit, then it’s time for the leaders in the acquiring company to make tough decisions. One decision is to cut bait and divest the acquired company before the inevitable bleeding progresses. The other is to ratchet up the controls: unapologetically define the values, behavioral, and performance expectations for everyone affiliated with the firm (including the people that were acquired), accelerate cultural training, development and formal coaching/mentoring initiatives for members of the acquired firm, launch regular “cultural exchanges” between members of the two firms, prominently reward those who get on board, and prepare clear management directives to resistors and skeptics to either change or move on—and make sure those directives have “teeth”. The worst thing to do is to sit back and hope that the problem will somehow resolve itself over time. Had Company X taken the above steps, it would have substantially improved the odds of success for the deal. It would have been much more likely to have realized the projected gains which seemed so reasonable and exciting when the deal was originally done.