A Primer on Issues in Mergers and Acquisitions

David Chaudron, PhD
Organized Change

With the news in the last few years filled with mergers and acquisitions, many of which don't go well, a summary of what makes for a successful merger or acquisition might help:

Reasons for M&A

A strategic fit.
Though somewhat vague, the merging companies complement each other's products or services, allow greater penetration of existing customers, or allow greater geographic reach.

Perhaps a company in the beginnings of a declining market, purchases another in a declining market as a way of re-invigorating itself. Can we say Microsoft trying to buy Yahoo a few years ago?

Buy out of stockholders.
As with the case with Sprint, they partly own a company whose assets they prize, but don't have enough capital to own the rest. As a result, there are various bids to give Sprint enough capital to do so.

Economies of scale.
Though this seems to make sense so that companies reduce their overhead costs, these mergers rarely work.

Move into another business.
HP purchased EDS, and Dell purchased Perot Systems as a way to move from a hardware to a services business.

Acqui-hire or IP purchase.
Oftentimes, larger firms acquire a company, when in reality they just wish to purchase the skills and abilities of the founders. In something of the reverse, companies wish to purchase the IP (the patents of Kodak come to mind), or the brand name(the purchase of Twinkies) with little interest in the human capital of the company.

Barriers to a successful merger or acquisition.

Lack of due diligence.
As HP found out with its purchase of Autonomy, a thorough, dispassionate look at all companies in the acquisition is worthwhile.

Underestimating integration of differing internal systems.
A local company was spun off, allowing it to remove or reduce a significant amount of overhead. Unfortunately it still has eight(!) ERP systems still running simultaneously, and segments of the company fighting to keep their respective turf and power under each.

Assumptions about the future, markets and customers.
A strategic fit between companies may only work well under a common set of assumptions about the future and the markets they are in. What if these assumptions are not correct? Will the merger still be successful in a variety of scenarios?

Company cultures don't fit.
Is one aggressive, filled with young employees willing to take significant risks, and the other, staid, thoughtful and always sees things through? Do you think these folks could easily get along without a lot of help?

Senior teams internal issues, and senior teams won't mesh well.
One may be highly politicized but still open about conflict; The other, collegial but conflict-avoidant. Any guesses how they might work together?


Data before decisions.
Many involved in M&A often use the motto "Ready, Fire, Aim". They initially become enamored of the merger and use the data collected to justify a decision already made.

Test the assumptions of strategic fit under different scenarios and different market conditions.
Are the principals assuming the future will be just like the past, or assume what they wish to happen actually will?

Avoid mergers for cost reasons.
They just don't seem to work.

Assess company culture.
Ideally, an employee survey of perspective companies would be useful before the merger occurs. If this is not possible, an indirect assessment can be done that might include HR records, previous employee surveys, demographic descriptions, etc. If such an assessment cannot be done before the merger, a survey afterwards would be most useful. Using this data, the newly-formed senior team can work on the issues raised.

Assess senior team dynamics.
As senior management may already be aware of the future M&A activity, a more direct approach to assessment can be done. After the merger is complete, a thorough discussion of roles and responsibilities should occur, and teambuilding among the (remaining?) senior management should occur.