MORE THAN 90 per cent of corporate mergers and acquisitions are falling short of their objectives, as companies struggle to combine corporate cultures and structures, according to recent research.
The study of senior business leaders with M&A experience found that just 9 per cent of mergers are considered “completely successful” in achieving their stated objectives.
“The M&A feeding frenzy over the last year has been fuelled not only by cheap debt and the rise of private equity, but also by companies’ strategic focus on consolidation,” said report author David Derain, European M&A director at Hay Group, which conducted the research. “However, the enormous amounts invested in M&A are not delivering their promised value.”
The survey of more than 200 major European M&As taking place over the last three years also identified critical omissions in companies’ due diligence and post-merger integration strategies as the primary causes of M&A failure.
Firms are prioritising financial and systems due diligence at the expense of the vital, intangible assets critical to a merger process — such as business culture, human capital, company structure and corporate governance.
While business leaders pay lip service to the need to audit and integrate intangible assets, there is a worrying lack of focus on them, not only during the due diligence stage, but also as part of post-merger integration strategy.
Only 13 per cent of business leaders state that engaging and integrating senior management and the workforce was given high priority as part of their company’s integration strategy, while as many as 70 per cent failed to prioritise intangible assets generally.
Little over a quarter (27 per cent) analysed the cultural compatibility of the firms to be merged. Fewer still (22 per cent) carried out a human capital audit. Crucially, nearly two-thirds (59 per cent) failed to prioritise a leadership capability review.
This is having a disastrous impact on the success of the integration process, according to executives: 78 per cent of acquired company employees opposed the mergers, 50 per cent of them actively.