The No. 1 Reason Corporate Mergers Fail

September 1, 2020
unhappy corporate merger meeting

The next time you find yourself involved in a merger or acquisition, keep a sobering statistic in mind: Almost all of them fail, according to the Harvard Business Review. And yours probably will too unless you do one thing really well: make sure your values are aligned.

Your merger might make perfect sense when you examine each other’s balance sheets, capabilities and growth strategies. But if the values of your two companies are not aligned, forget it. This is especially true today as businesses wake up to the realization that values drive their future with everyone who matters: their people, customers, investors and business partners.

I have been in the professional services business for more than 30 years. I’ve been involved in more than 40 M&A deals on the buyer and seller sides. Most have succeeded and some have not. Let me tell you a story about one of them to illustrate why values matter.

A few years ago, after I became CEO of Investis Digital (then known as Investis), I proposed to my team that we buy a performance marketing company, Zog Digital. It was absolutely the right move. We needed to bolster our content creation skills with strong online advertising and search engine optimization. At the time, there were many strong candidates available. But I knew Zog Digital. I knew the company’s CEO personally. I knew the company’s people well. I had an intimate understanding of their culture and values. And those values — ranging from a commitment to innovation to an intense desire to measure success — were completely in sync with our own values.

Zog Digital’s values were the company’s ace in the hole — that advantage no one else could touch.

We closed the deal in October 2017. It was so successful and important to us that we ended up rebranding our company with a new name, Investis Digital, and a strategy, Connected Content, that reflected our combined future shortly thereafter (if there’s a better sign of two companies trusting each other, I have yet to find it).

We needed our values to sync well. It was imperative that we move fast and build a business that combined content and performance marketing globally before someone else did. Had our values been misaligned, we would have lost our momentum while we tried to fix internal squabbles, crises caused by key departures of personnel and the pain of lost clients — all the byproducts of a merger gone off the rails.

Those bad things didn’t happen. Because we already knew each other well, we could focus on combining our skills, client relationships and strategies without missing a beat. We trusted each other from the start.

But why don’t more businesses factor values more strongly into their overall M&A approach? Why don’t they assess another company’s values more carefully as part of due diligence? Based on my experience, companies trip over two stumbling blocks:


1. Many CEOs don’t take corporate values seriously.

Typically an M&A starts and ends with two CEOs talking with each other. The two CEOs involved need to sit down personally and have a frank conversation early on to assess each other’s corporate values. Can both CEOs discuss their values fluently? Can they share evidence of how they share those values with their people and ensure that people’s actions reflect those values? Let me assure you that you can tell right away whether your two companies are aligned when you have that conversation at the CEO level. But the problem is that CEOs don’t have that conversation, which creates a gaping blind spot from the start.


2. The people who understand values and culture lack a voice.

Usually, CEOs put the finance team in the driver’s seat when they size up a potential merger. They assign someone like their chief strategy officer to study how well their capabilities and strategies align. But unfortunately, the people who are supposed to be the voice of a company’s culture and values — usually HR — are brought in late in the decision-making process and relegated to the role of sizing up staff numbers to identify areas of overlap. This mindset needs to change. CEOs need to identify a values advocate with the specific job of assessing culture fit. And the advocate must have a seat at the table.

A failure to align values has serious consequences, such as:

  • Loss of key talent who reject the merger.
  • Internal discord as the two entities realize their people do not work well together because their values are incompatible.
  • Client relationships damaged by internal discord.
  • A blow to your reputation as employees share their strife on sites such as Glassdoor.
  • A failure to execute on strategy while your business gets mired in cultural problems.
  • A failure to create better services and products because your people cannot work together.

Who wants those problems?

To avoid falling into this trap, I recommend a mindset change. Here are some things you must do:

  • First, take a step back and understand that a merger is difficult to pull off even under the best of circumstances. Don’t allow yourself to get seduced by the myth that mergers are inherently good to do. They may or may not be. There are dangers involved, and incompatible values is one of them.
  • As noted above, both CEOs involved need to include values in their due diligence checklist.
  • Assign an M&A values gatekeeper the job of creating a process for assessing values compatibility in the entire M&A arc — from assessing a company to managing the transition to setting yourself up for long-term success down the road.
  • Agree with your key decision-makers that you will be willing to cancel the deal if your team sees incompatible values.

Values aren’t the only measure of a successful M&A. But you need to make values an essential component to have a fighting chance. I discuss this topic in greater detail in my forthcoming book, The M&A Solution: A Values-Based Approach to Integrating Companies.


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