M&A Failures…Oh, When Will They Ever Learn

A recent Google search titled

“merger and acquisition failure reasons” resulted in an estimated 242,000 hits. There is a mix of academic research, specific industry experts and consultants within the first fifty postings, with what appears to be “violent agreement” that somewhere between 50% and 75% of M&A’s are judged to be failures. Lack of attention to organization culture alignment is a likely culprit.

In fact, within those previously mentioned articles, lack of alignment of cultures is identified from the #1 to #17 rationale explicitly. Particular elements of the integration or lack of integration suggest that not enough attention was paid to “the way things are done around here” as opposed to “the way things are done around there.” In fact the “lack of due diligence” is cited frequently. Unfortunately, markets, competition, economy of scale, share price etc., etc, etc. is what is called out…little to nothing is said about the likelihood our people will get along, or whether our processes are different or if we value the same thing.

In my fifteen years plus in culture integration work; I can recall only three clients who were bold enough to do “pre-marital” counseling. Taking that analogy a bit further, typical M&A due diligence might be compared to a couple getting married after “speed dating.” We all know the advice to put our best foot forward during the courting stage. The push-back on due diligence at the front end, particularly public companies, is that transparency is dangerous. But lack of transparency can certainly be more hazardous.

So, back to the three clients who “peeled back the onion” before their union. Two of the three decided NOT to move forward. An excellent case was a financial institution considering acquiring a competitor. We started by gathering quantitative data, employing the Denison Organizational Culture Survey (DOCS). Interestingly enough, both institutions had very strong and similar profiles. In particular, both scored high in “values.” On the surface it seemed like a great fit. Yet there was more of the onion to be peeled.

After doing one-on-one confidential interviews and focus groups, we learned that yes, both institutions had strong values; however, they valued very different things. My client valued entrepreneurial behavior, going the extra mile for their customer and pitching in to help their team mates. The other group saw themselves as a family (some even described themselves as dysfunctional), with members who valued working apart from each other in silos and valued the “rules,” as it related to interacting with their customers. The C.E.O. recommended to her board that they continue to look elsewhere.

In closing, there was an anti-war song in the 60’s by the folk group Peter, Paul and Mary titled “Where have All the Flowers Gone.” The key repetitive lyric… “Oh, when will they ever learn?” seems to apply here. When will companies learn that sometimes it makes sense to go a little slower at the front-end so you can go fast when it really counts? Perform the “cultural” due diligence…it pays dividends in multiple perspectives.

*To date DOCS appears to be the only survey instrument that makes the connection between the strength of an organization’s culture and performance measures such as market share, ROI, customer satisfaction, employee satisfaction and quality.