Recent Deloitte & Touche research reveals many of today’s business failures are the result of poor integration of a merger or acquisition. Of the forty most recent investigations carried out by Deloitte’s reorganisation services, 57% of the businesses had a failed merger or acquisition as the chief cause of their problems. In 40% of cases the acquisitions also had to be sold as part of the restructuring.
I have worked on 35 merger integrations since the mid 1980s. My experience is it makes little difference to integration success whether a deal is hostile or friendly. The dangerous territory lies between these two ends of the spectrum: the ‘lukewarm’ merger.
Well-executed hostile mergers succeed as the takeover company is forced to build up a detailed picture of their quarry from the outside. They have a clear plan to take control of the target. Ambiguity about control is removed from the outset.
Genuinely friendly mergers, where there is enthusiasm for the merger from the board down, succeed for different reasons. Managers at different levels in both businesses plan the integration together, where possible before deal close, ensuring essential decisions are made early. Problems occur with ‘lukewarm’ mergers or acquisitions. The merger parties talk a good game but then spend months jockeying for the best jobs, hiding important information and taking their eyes off their customers. They fail to explain the blueprint for the integration with one voice. The business is confused as senior appointments remain undecided and no one takes control.
Hostile and friendly mergers both succeed because integration moves forward apace. With such major change happening on many fronts, speed is of the essence. Deloittes’ study of business failures reveals that in 50% of cases, it takes less than a year after a merger for business distress to become evident. In ‘lukewarm’ deals, the rot has usually set in by the day the transaction is completed.
As P&O Princess’ shareholders consider their options they will appreciate that getting the deal signed is just the beginning.
- Angus Knowles-Cutler is a merger integration services partner at Deloitte & Touche