Post-Merger Integration vs. Disintegration

71% of post-merger integrations (PMIs) fail, according to a 2015 study conducted by Deloitte.  Bain & Co. examined 24,000 transactions over a 10 year period and Oliver Wyman wrote the book on successful PMIs.  Why do they fail and how did the other 29% succeed?

Some of the basics found that success increases when organizations from the same core business merge versus companies from disparate industries.  Also, when cash is paid, rather than stock options, the success ratio rises mostly due to the extra level of due diligence required.

However, there is one universal truth from all sources:  The key to a successful PMI is clarity, transparency, and integrity in communication.

The external message to the market and customer-base needs to be clear to be effective.  However, the internal message to employees is even more critical to success.

The #1 reason PMIs fail is the inability to adapt quickly to unexpected challenges.  Therefore, selecting and retaining top talent is critical.  Speed of communication is crucial to keeping top talent.  The longer you wait to identify new roles, the more time you give headhunters to poach your best people and capitalize on the atmosphere of uncertainty that exists after the announcement is made.

Another reason that speed and clarity of the message matter is that a lack of transparency can fuel the rumor mill and distract people from core business goals.  Employees need to stay focused on revenue generation during the integration to ensure success.

Communication focused on the overall goal and the value proposition of the merger needs to be articulated internally.  The nature of the deal needs to be transparent whether it is aimed at cost reduction (scale) or revenue growth (scope).  (As an aside, scope-deals tend to have longer PMI processes than scale-deals because it generally takes less time to find cost savings than it does to expand into new markets.)

The new corporate culture needs to be clearly communicated and firmly committed to by everyone in the organization.  Studies showed that success increased by creating a NEW culture, rather than simply maintaining the culture of the acquirer.  In other words, assimilation usually fails as turnover increases.

Sincerity and integrity must be certain for PMI success.  Simply put, all communications must be clear, transparent, and true.  I was the top performer in an organization that was acquired by a competitor, and we were told it was a “merger of equals” and that the new organization will be the “best of both worlds.”  When it became apparent that those words were empty and simply stated to keep us from exiting, many lost faith and jumped ship.

Leading indicators to monitor during the post-merger integration are the sales pipeline, employee retention, and customer complaints.  All of which require crystal-clear timely communication in order to succeed.