Any change is hard, but a merger is perhaps the most difficult organisational challenge of all. What makes it so challenging is the sheer level of emotion in the system. Many people have a significant emotional investment in the organisation they work for, but during a merger, many of the things that drive that emotional connection are put at risk.
Is a merger the right thing for your business and how can you ensure that you would survive and thrive post-merger?
• Is a merger the right thing for our business?
• Do we understand the risks and challenges our business could face if we merge?
• Have we thought this through and agreed what the first 100 days will look like?
• People issues are almost always underestimated in mergers and are rarely given priority over other factors as part of the due diligence process.
• Are we confident that the merger rationale will create real value for the combined business?
• How do we take our people on the journey and retain our key talent?
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Success stories like Dixons and Carphone Warehouse are much more the exception than the rule. All the research indicates that most mergers and acquisitions fail, with different studies putting the failure rate at between 70% and 90%. It’s also estimated that at least half actually destroy value – the AOL/time Warner and Daimler/Chrysler mergers are among the best known cautionary tales. Many never make it over the line – but still manage to chew up significant amounts of money and management attention. The statistics provide little comfort for chief executives considering tying the knot with another business. But while the risks of failure are high, the rewards for success can be enormous.
The merger of Dixons and Carphone Warehouse is widely held to have been a huge success. In its first full year the merged business recorded a 21% increase in profits, delivering significant shareholder value in the process.
In this paper, we have drawn on our experience from Dixons Carphone and elsewhere to explore what makes mergers so difficult – and more importantly, what makes a happy few succeed.
In most mergers, the focus is on the most visible things such as where the head office will be, which accounting system will be adopted, structures and reporting lines, and branding. But in our experience, what you can’t see is equally, and often more important. Anyone who has been through a merger knows it is a rollercoaster ride. At different stages people on both sides will experience excitement, fear, uncertainty, motivation, disillusionment, loss, resentment, hope, anger, loss of confidence and in worse cases even depression.
1) Look beyond day one. Day one isn’t the finishing line – it’s just the beginning.
2) Be prepared – but be prepared to change. It’s vital to acknowledge from the start that mergers are a journey – and the end destination may not be what you thought it was when you started out.
3) Lead from the top. Leadership, of course is always key – but in a merger strong, committed and visible leadership is absolutely vital.
4) The ‘soft’ issues are every bit as important. People issues are almost always underestimated in mergers. Given the level of emotion that will be in the system, people issues need to be given much more visible and up front attention than they typically are.
5) Work it out together. Our experience is that the further away the people are from Head Office and the centre of power, the easier the process is. That’s because the closer you are to customers, the less time you spend on theoretical solutions and the more time you spend on simply making it work at a practical level.
6) Rip the plaster off. Uncertainty is anathema in a merger – so fast and decisive, rather than careful and considered, is a fundamental principle.
7) Get off the dance floor and onto the balcony. Getting off the dance floor and onto the balcony was a phrase we used often in the Dixons Carphone merger. It referred to the need to take time out every so often to recognise and enjoy what we were achieving along the way.
8) Get the city monkey off your back. Expectations will be high and the city will be watching what happens with interest. The key is to under-promise and over-deliver – and not the other way around.
9) Be very, very sure. Mergers can have a big upside – but they can also be very painful and a massive drag on the business.