How to Avoid Acquisitions Backfiring

Thursday, December 30th, 2010

 

Acquiring sounds like a good idea, and it can be, but it can also backfire badly. As you prepare to take on another company, ask yourself, “Is this a good fit?”

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by Rick Maurer

We love to acquire. It is a major way many companies grow. Instead of developing internal capacity, companies purchase other companies that have already developed a product or service. America Online, G.E. and many others have used this strategy well. Acquiring sounds like a good idea, and it can be, but it can also backfire badly.

You can probably do a pretty good job of assessing what you need to complement your core business. And, you probably have the capability to see if the proposed acquisition makes financial sense. However, you may neglect one critical question, “Is this a good fit?”

According to a recent study by Peat Marwick, over half of all mergers not only fail – they end up losing money. Repeated studies indicate that it’s those pesky soft cultural issues that kill mergers and acquisitions.

As you prepare to take on another company (even if it’s a company of only ten people), ask yourself the following questions:

  • Who will lead this new endeavor? There are few true mergers of equals. The joke is that often those who are taking over call it a merger, while those being taken over call it an acquisition. What impact will this change in leadership have on morale and productivity? Hewlett Packard is in the process of buying the consulting firm of Coopers PriceWaterhouse. Some believe that the consultants from that firm will bolt once the acquisition takes place. Since consulting is a knowledge business, a loss of key consultants could result in an expensive acquisition with little payoff.
  • How closely will the two companies need to work together? In some acquisitions, the purchased company can remain fairly independent. In other situations, the host and the acquired company must work together closely. The closer you need to work together, the more critical it is to make sure the cultures fit.

In those instances where the two companies must work together closely, look at the differences between the cultures.

  • How do decisions get made? One electric company has a formal hierarchical way of making decisions. All decisions must go up through the massive chain of command for approval. They are in the process of acquiring a company that is much more free-wheeling and spontaneous in how it makes decisions. If someone has a good idea, it’s pretty simple to get it implemented. This could be a problem.
  • Formal or informal? This shows itself in things as simple as how people dress (which can be a big deal for people) and in the ways they treat each other. Look at how rank and status is treated. Is one company very concerned about the perks and honors that go with seniority and the other is more laid-back with a “Just call me Bill” bonhomie?
  • Compensation, benefits, and rewards? I recall people in one organization getting angry when benefits nobody particularly cared about got taken away.

If there are some dramatic differences in how the two companies work, you need to ask yourself, “How will we manage those differences?” If you try to force your culture on them, you will probably incur strong backlash. Years ago, the mighty AT&T tried to inflict its culture onto the relatively small NCR. They even changed its name. The acquisition didn’t work, and AT&T ended up selling the company at a loss.

Acquisitions and mergers are similar to second marriages. Each partner comes with a history filled with dogs, cats, kids, and ways of doing things. Some of these marriages work great, but it takes work. These marriages seldom work when people just hope things will work out. I urge you take the relationship part of corporate marriages just as seriously.

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© 2009 Rick Maurer. Rick uses his Change without Migraine™ to advise organizations on how to lead change effectively. He is author of many books including Beyond the Wall of Resistance. Recently, he created the Change Management Open Source Project, a free resource for people interested in change in organizations. www.beyondresistance.com

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