Numerous studies have shown that a lot of things can go wrong during a merger or acquisition that cause severe damage to both the target and acquiring firms. Some of the better known examples of deals that went wrong include the AOL-Time Warner merger, the News Corp-MySpace acquisition, and the HP-Autonomy deal. Many lesser known deals–which didn’t make the headlines–also failed to deliver on promised expectations. Let’s take a look at some of the common reasons M&A deals fail and the implications that has on IT.
The absence of a clearly defined growth strategy can result in a lack of purposeful due diligence, weak deal negotiations, and a confused approach to integration. For IT this can result in the wrong due diligence activities and the misalignment of integration priorities.
Cursory due diligence
Due diligence is sometimes treated as an opportunity to validate what the acquiring firm’s senior management thinks they already know about the target firm, rather than addressing the challenge of "knowing what they don't know." For IT this lack of understanding of the target firm’s IT environment can result in unknown (and unnecessary) integration risks.
Poor post-merger planning
Business managers at the acquiring firm sometimes expend most of their energy closing the deal, leaving the post merger planning details to the junior managers and staff within the acquiring firm. This approach to M&A integration puts enormous pressure on the acquiring firm’s IT staff to produce a smart post-transaction integration plan.
Dissimilar corporate cultures, and the conflict they can engender during an M&A transaction, may de-motivate employees, resulting in the departure of key people. For IT this poses the risk that key technical staff and subject matter experts could walk out the door before the integration is completed, potentially adding months (and a lot of expense) to the integration effort.
Shoddy integration execution
Jim Skinner, the former CEO of MacDonald’s, said during a 2012 CNBC interview, “Knowing things is important, but knowing what to do about things is more important. It’s all about execution.” When the employees tasked to execute M&A integration lack essential skills, or are casual about their assigned responsibilities, tasks may not be completed as they should, the integration effort falls behind schedule, synergies are lost, and benefits are not realized. For IT this means putting the right people in charge of the integration effort and executing a thoughtful approach in a disciplined manner.
In the chaos following an M&A transaction customers are sometimes neglected, and when customers sense that their needs are not being attended to, they often flee to the competition. As a result, market share is eroded, negative publicity ensues, and the acquiring company can find itself fighting to salvage a business that was thriving prior to the transaction. For IT this means identifying all of the potential integration-related issues that might adversely impact customers (at both the target and acquiring firms) and developing risk mitigation plans to avert any IT-related customer satisfaction issues.
In my next post I’ll discuss M&A due diligence from a business and legal perspective.
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