Why Half of All Mergers Fail after the Honeymoon Ends

Thursday, December 30th, 2010

Why Half of All Mergers Fail after the Honeymoon Ends

Like second and third marriages, people never seem to learn the lessons. This article tells you what to look out for.


by Rick Maurer

Although studies show that mergers don’t work, organizations persist in thinking that this time it will be different. Here’s why so many fail – and what to look out for.

Marriages and corporate mergers in America have at least one thing in common — more than 50 percent end up on the rocks. In fact, according to a McKinsey study, only 23 percent ever recover the costs of walking down the corporate aisle.

These statistics should quell the corporate urge to merge, but, like young lovers, logic seldom gets in the way of romance.

A merger between families illustrates the difficulty of creating an ideal marriage. Two single parents, each with their own children, pets, and old habits, decide to marry and join their families into one.

Because mom and dad are so in love, they fail to see that the kids don’t get along, the cat hates the dog, and their single TV can only handle one show at a time. Reality slowly begins to creep into paradise.

Take Bell Atlantic and Nynex. They are already experiencing resistance to change from some of their “family.” The Communications Workers of America have voiced concerns about this merger. Both companies appear to have different approaches to unions. Bell Atlantic appears more confrontational, while Nynex in recent years has tried to build stronger ties to the CWA. How this gets handled might be the first test of who holds the remote control during prime time in this new family. Will the telecommunications giants work together to develop a strategy for working with the union? Or, will they leave things to chance?

Bell Atlantic and Nynex was not the only engagement announced recently. Time Warner and Turner, Aetna and US Healthcare, SBC Communications and Pacific Telesis Group have promised to join hands as well. In each instance, the decision to merge makes good business sense. Bright people using sound data, keeping the interests of shareholders in mind, made these decisions. Unfortunately, most of the attention will be on regulatory issues, finances, and grand organizational designs. The subtle and, seemingly, soft issues like how decisions get made may be left to chance. If so, this could be disastrous.

The betrothed companies will need to pay attention to the fact that they are attempting to blend different ways of working. I urge these companies to consider the following as they work on their wedding vows.

  • How are decisions made? Do they come down from on high like lightning bolts from Zeus, or do people engage in a more democratic and slower process?
  • How do people get things done? When an accountant needs to talk with her counterpart in marketing, must she go to her boss, who in turn talks to his peer, who in turn relays the message to her subordinate? Or do people just move freely in and out of departments with little formal regard for rank?
  • What do communications systems look like? Does one company have an integrated management information system complete with e-mail and sophisticated intranet linkages, while its counterpart relies on pneumatic tubes, bulletin boards, and face-to-face contact?
  • How are people rewarded in the two companies? Who gets bonuses, promotions, and coveted assignments? Does one company applaud risk taking and initiative while the other reveres people who play by the rules?
  • What’s punished? Is telling the truth like the child in the emperor’s new clothes appreciated or does the speaker find he has just become a pariah?

Since each company believes that its way of operating is how God intended life to be in corporate America, major differences in culture could be difficult issues to face. It will be important to persist. Typically, the more powerful partner prevails, but only at a cost. The “weaker” partner resists being told to change and this leads to subtle or profound resistance that hinders or stops efforts to merge operations. AT&T’s purchase of National Cash Register was a disaster, in large part, because the far-larger parent company tried to inflict its culture on a company that was proud of its rich heritage.

There is a choice. The two companies can identify these differences. Recognize what’s good about each culture and then determine jointly how they will face the future as a unified force. All these proposed mergers will face many tests to their cultures over the coming months. They can use these incidents as opportunities to examine differences and consciously select a way of working that fits the challenges they will face in coming years, or they can just hope they will live happily ever after.

© 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