4 reasons mergers and acquisitions are doomed to fail

4 reasons mergers and acquisitions are doomed to fail

Columnist Rob Enderle writes that if executives would learn from mistakes rather than focus on blame when things go south, acquisitions might not always crash and burn.

I got pinged by Quora this week with the question, “Why do acquisitions kill startups and apps?” I responded, but I find this question so annoying that I want to address it again here. Why I find this annoying is that while acquisitions generally destroy the acquired company they don’t have to. A lot of jobs and value are lost because executives don’t seem to get this.

The most annoying acquisition this century was the Palm acquisition by HP. It seemed they actually had a plan to preserve the asset, but then threw that plan out seemingly to make the new CEO look bad. As a result they ended up destroying billions in stockholder value and eliminating what could have been a stronger competitor to Apple in the process. I get that the politics inside a complex company like HP can be ugly, but this could have been caught and prevented relatively easily. Doing an acquisition right isn’t really rocket science, but, like a lot of things you need to have some experience and your priorities straight and often neither is the case.

Why acquisitions fail

I used to run an acquisition clean-up team for IBM. We had a lot of these things to clean up largely because we kept seeing the same mistakes over and over again. We looked at the acquisition process and found a number of stupid practices that appear to be consistent with the problems other firms are having with this process.

First, was the practice of assuring the acquired company conformed to the acquiring company’s policies and rules. Now you might ask, what is the problem with that? If the rules are good enough for us they should be good enough for a company we acquired, right? Not really, acquired companies tend to be smaller, younger and unique in some way and that way is connected tightly to why they were attractive as an acquisition.

If you start mucking around with span of control, salaries, titles, responsibilities and process you are likely to destroy much of what you bought the company for in the first place. Or, in other words, if your processes were so great why did you have to buy a company rather than build whatever the firm built in-house? It amazes me how often I see executives wonder what happened to the innovation they thought they acquired when they bought a small firm. The answer should be “you did,” but it is seldom vocalized.

Second, there is no effort to categorize and protect the parts of the company that drove the acquisition. If you bought a new supercar you likely made the decision because the car was fast and good looking so you are unlikely to mess with its looks or swap the engine out for a lower horsepower unit. In fact, you are likely to not drive it for fear of destroying its value or having even a small accident.

Much like you’d take care of that car, an acquired company needs to be defined according to where its value is and that value needs to be protected. If you value the innovation you don’t muck with the folks that are innovative, if you value its agility, you don’t muck with the executive team, and if you value its customer loyalty you don’t bet in between the acquired firm and its customers.

Now if there are problems, like a good doctor, you first investigate what the cause of the problems are and then come up with a plan to surgically (or medicinally) address them. You don’t pull out an axe and start chopping things off, yet that is the more common result.

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