As important as the particulars, manner, form, compliances and closing the M&A deal itself are, far more important is evaluating whether the transaction has achieved its purpose. From the business’ perspective, the deal is only as good as the value-added benefits it gives the business because what would be the point of such multi-million or multi-billion-dollar transactions otherwise?
Therefore, it is important to not only guard the M&A deal and its processes but also its implementation against failures. If the M&A fails due to shoddy integration, the business would have been better off investing its money, resources, time and influence into something more profitable.
Having an idea of what root causes lie behind such failures is will enable a business to guard against them up to a certain extent. Having this knowledge is still rather important because of the generally high rate of M&A failures that the business world has witnessed in the past. From observing some of them, the root causes of integration failures are found to be: people, operations and technology.
These three factors should not be looked at with apprehension. Rather, they are the core areas where the merging companies should look to strengthen and build before, during and after the M&A transaction.
WHY? Because each M&A process is like a marriage. At the end of the day, it is a legal union of two corporate entities having a separate legal existence, people, operations and technology who become one as per law. The integration process is to ensure that they, become one, not only legally but also in fact as it is the impetus behind the M&A transaction itself.
Focusing solely on the valuations or figures of the transaction is not enough as often, it is the intangible ‘X’ factor that is the swing vote for the M&A’s success or failure. For this, a comprehensive Post M&A Integration Policy is a great tool for the business to achieve integration. So, let us look at how each of these three factors can be strengthened for true M&A integration.
· People
Human capital i.e., people, its employees, are one of the most important resources that a company has. It thus, follows that a company must be able to orient and prepare its employees for the M&A transaction because employees fear change. This fear can lead to a lack of employee co-operation in the form of an exodus, inaction, feelings of resentment and challenges to leadership.
To overcome this fear, employees must be involved in the transaction and the decisions of the organization at each level and should be made to feel included. Employee inclusion and participation may involve feedback sessions, brainstorming exercises, counselling sessions etc.
Communication becomes a huge tool for achieving inclusion and change. The channels of communication must be left open for getting messages sent across the organization clearly and to clearly understand the employee’s concerns.
· Operations
Integrating the new entity into the fold may at first, seem like a “Square Peg, Round Hole” situation. During the first few weeks immediately succeeding the M&A, the emphasis should be on strategic planning and identification of areas where the new entity’s operations can be improved. Efforts should be directed at reducing the costs of operation of the new entity and resolving existing operational issues and control gaps. The next step would be to identify newer, innovative ways of operating with lesser costs but higher productivity until the organization, as a whole, starts to work together like a good football team.
· Technology
Investing in good technology infrastructure is no doubt a costly process but also, a necessary one. Your organization post the M&A transaction should freely embrace innovations in technology, communications and organizational structures. It should soldier bravely towards its new identity by ensuring innovation and product differentiation. Companies that do not embrace technology or baulk at investing in it suffer at M&A integration. However, what would be the point of investing billions if you don’t see the fruits of it? The attitude regarding technology integration and innovation, especially after closing an M&A deal and for it to be a success, must be “in for a penny, in for a pound.”
Case Study
1. Microsoft-Nokia Deal
Microsoft purchased Finnish mobile handset maker Nokia for $7.2 billion, a merger which was unexpected in the technology industry and was aimed at building Microsoft’s mobile and smartphone offerings. However, it faced even more challenges after the deal closed i.e., the challenge of integrating employees from different cultures. This case is one of many examples that show the difficulties that companies face when attempting to merge two different identities.[1]
2. Yahoo’s Acquisition of Tumblr: A failure to plan and integrate
In 2013, Yahoo acquired Tumblr in the hope of attracting the millennial segment. Yahoo’s CEO, Marissa Mayer, wanted to make the company relevant again and compete with social media giants like Snapchat, Instagram and Facebook. However, after the acquisition, it let Tumblr operate without interference and did not take any steps to integrate the businesses. By the time they realized their mistake, it was too late and Tumblr’s ad sales had dropped exponentially. When Yahoo integrated the sales teams, there was a corporate culture clash because the Tumblr team was unhappy with Yahoo’s stuffy work culture and the integration had to be rolled back. Yahoo wrote off most of the acquisition was acquired by Verizon in 2017. WordPress owner Automattic acquired Tumblr in 2019 at $3 million. Yahoo’s failed acquisition of Tumblr boils down to one reason: it never understood Tumblr and didn’t know what to do with it![2]
[1] Programme on Negotiation, Harvard Law School, Top 10 International Business Negotiation Case Studies, Daily Blog, (10 Sept. 2019), https://www.pon.harvard.edu/daily/international-negotiation-daily/top-negotiation-case-studies-in-international-negotiations-from-business-and-global-politics/.
[2] Deal-Making Don’ts: Lessons from Yahoo’s Tumblr Acquisition, PON – Program on Negotiation at Harvard Law School, Daily Blog, (21 Jun. 2021), https://www.pon.harvard.edu/daily/business-negotiations/yahoos-tumblr-acquisition-nb/.
