Mergers and acquisitions (M&A) deals occur all the time in the business realm. Usually, we only hear about the big mergers in the news, but smaller companies often combine forces for greater profitability.
Unfortunately, not all mergers work out. In fact, some research indicates that more than 80 percent of mergers either failed or were not profitable for their shareholders. If your merger is not going to work, see the writing on the wall and pull out early. Or, identify the problems and make corrections now to save the deal.
Use these five signs of a failing merger to help you prevent a catastrophe.
1. Poor M&A Management
There are many types and circumstances surrounding M&A, according to this solid guide to M&A deals, but it’s the management of the deal that’s most likely to indicate your success or failure.
This does not mean that you need the top management members in the firm to take over the merger—in fact, this move can be lethal to your M&A. It’s much better to have an experienced M&A manager handle the merger.
Unfortunately, this may mean finding new roles for your top executive or eliminating those that won’t play along. Otherwise, you may find yourself dealing with dueling CEOs and warring arrangements that create more divisiveness than unity. It’s not personal; it’s just business.
2. Lack of Funding
The joining of two companies in an M&A deal is designed to raise profits, but it doesn’t start out that way. Typically, it’s very expensive and requires ample funding to succeed—more funding than many joined companies have at the output.
When mistakes are made during the merger, it costs even more money, and it’s not always recouped fast enough to keep you in business. Shareholders may also pull out prematurely because they feel the merger isn’t working as well as it should.
Limiting mistakes, budgeting carefully, keeping shareholders happy, and reducing your bottom line are essential to keeping your newly formed company running.
3. Cultural Differences
A unique problem with a merger is combining two cultures into one company. Each firm is used to doing things according to their own methods and preferences, and suddenly, they’re expected to merge together peacefully and harmoniously. You wouldn’t think that mergers fail because the people within them can’t be grown up enough to get along, but it happens more than you realize.
Leaders must take unpopular actions and eliminate those who won’t adapt to the changes—it’s an unfortunate part of the plan, but it’s essential to making it succeed, particularly in smaller companies.
4. Conflicting Business Models
Like the problems with differing personalities, there may be issues with two different business models failing to work together. The merger might look good on the outside, but once the two business models are brought together, it’s clear that they’re incompatible and doomed to fail.
As an example, look at the Facebook and WhatsApp merger. According to an insightful article from Inc.com, the two companies tried to merge with “diametrical opposite” business models. Facebook was focused on exploiting user data while WhatsApp was trying to keep it secret. The two could not mesh, leading to a failed acquisition.
5. Too Much Finger-Pointing
M&As that fail often do so because they get too caught up in defining who is at fault instead of taking proactive steps to fix and avoid problems. There are dozens of decisions made in these deals, some by each party. No one should be expected to get it right every time, but that’s often the expectation from each side.
In some cases, cover-ups happen because the group at fault didn’t want to take responsibility. As a result, someone gets fired, even if they weren’t the person causing the problem. Thus, these mistakes are made over and over with little positive effects.
Many of the problems associated with a failed M&A are more caddy than you might think. Companies of any size trying to maximize their deal should be aware of the problems that come with failing to play nicely and being quick to point out blame. There are simple steps any company can take to avoid these problems and even repair the damage.