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Liaquat Lal explores the importance of people in mergers and acquisitions


t’s boom time again for merg- ers and acquisitions (M&A). 2015 set a new global M&A

activity record: a total value of $4.3 trillion, according to MergerMarket, and a 30 per cent increase over 2014.1 While we might assume that a slow- down in emerging markets and contin- uing Eurozone troubles are driving this upswing, market commentary suggests that – in the US, at least – relative market strength is the predominant factor. As global head of M&A, Philip Isom, commented in KPMG’s 2016 report: “Te US. continues to be the favoured M&A destination because of its relatively healthy economy.”2 While remaining competitive in the

face of declining confidence in or- ganisations’ ability to generate growth organically had dominated in respond- ents’ 2015 replies, their primary moti- vations in 2016 – whether in relation to geographic reach, business lines or customer base – were all expansionary.

Counting returns or counting chickens?

But the challenge of extracting value remains. Like any promise, an M&A’s intentions must be realised, and history makes uncomfortable reading. Given their track record, any deal motivated principally by survival should ring alarm bells: ‘survival’ is not readily divisible. Most of us can recall high-profile deals that should never have been done: the stories of the New York Central and Pennsylvania railroads, Daimler and Chrysler, of AOL and TimeWarner should sound alarms down the years. Many other deals may have seemed worthy or potentially profitable, yet

shareholders will still have been fortu- nate to break even on their investments. Tis danger that the promise will

evaporate, with wealth destroyed rather than created, has long been recognised. McKinsey’s 2010 report, commented almost blithely that “Anyone who has re- searched merger success rates knows that roughly 70 per cent of mergers fail.”3

Lessons unlearnt

Hindsight reveals familiar patterns: too little listening (of the serious, active kind) and too much talk (of an over-confident or bullish variety); organ- isational structures that sought radical change without making any; strategies that rewarded the wrong behaviours, and acquirers acting more as victors than as new, relatively equal partners. Cultural insensitivity is perhaps the single most prominent factor, under- lining two important truths. Firstly, any M&A is ultimately only as good as the organisational change programme that succeeds it: ultimately, people rather than numbers lie at the heart of success. And secondly, organisations don’t change until their people do. Yet the triumph of hindsight over

insight remains common. In a 2015 Journal of Business Strategy article, Peter Buell Hirsch reminded us that “In a survey of 90 executives with experi- ence in handling M&A, McKinsey found that 92 per cent believed that their past efforts would have substan- tially benefited from greater cultural understanding prior to the merger.”4

‘Our people are our greatest asset’

So why do these patterns continue to repeat themselves? It seems that

the history books occupy one of the corporate bookcase’s less visit- ed shelves; the question has already been answered, but the lessons have not necessarily been on-boarded. Deloitte’s M&A Trends Report 2014,

for example, showed that ‘achieving cultural fit’ was considered the most challenging factor in achieving success- ful integration, but only 22.2 per cent of respondents considered it important. (By comparison, 39.9 per cent listed ‘customer retention and expansion’.)5 While it is employees’ abilities

and efforts that ultimately deliver organisational objectives, respond- ents’ identification of the objectives considered important with respect to company M&A strategy showed the same skewed focus. ‘Talent acquisition’ (49 per cent) ranked as only the sixth most important, far behind ‘expand customer base in existing markets’ (73 per cent) and ‘pursue cost synergies or scale efficiencies’ (66 per cent).

The hidden costs of the people dimension

Te psychological and potential perfor- mance impacts of change are well-docu- mented, and any skilled manager should already be aware that their responsi- bilities include leading people through change as much as they do leading change through people. Yet while M&As greatly impact the people in both companies, this ‘people dimension’ often receives scant attention. But while operational issues demand immediate and diligent attention, newly merged companies that give too low a priority to longer-term ‘soft’ issues can find themselves learning a swift, hard lesson. 

| june 2016 | 21

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