Why Do Most Companies Fail at Mergers and Acquisitions?

70-90% of M&A efforts fail to accomplish their strategic business objectives, mostly due to employee experiences with M&A integration. Gloat's senior project manager Emma McHugh speaks from experience.

M&a Fail

By Emma McHugh, Senior Project Manager @ Gloat

July 6, 2021

Emma McHugh

My name is Emma McHugh, and I am a Senior Project Manager at Gloat. I lead clients through the implementation of the talent marketplace at their organizations, and throughout my career in project management, operations, and HR leadership, I’ve been through mergers and acquisitions at almost every company at which I’ve worked. I can say, without a doubt, that the times I’ve spent navigating the repercussions of M&As have been some of the most challenging and stressful professional experiences I’ve had to go through in my career.

And I’m not alone in this.

According to Harvard Business Review, 70-90% of M&A efforts fail to accomplish the strategic business objectives they set out to, in no small part due to employee experiences with M&A integration, which are often sub-par at best, and harrowing at worst. Mergers and acquisitions can open up doors of opportunity when the integration efforts center around the intersection of employee experience and business goals, but they rarely do. Unfortunately, all too often, careers and organizations are not transformed for the better. I have watched high potential employees be laid off due to lack of insight into workforce skills, others voluntarily choose to leave in high volumes, and the resulting plummet of morale and productivity for all. A successful M&A plan needs to not only open more doors than it closes for employees but also paint a vivid picture of what is waiting on the other side of those open doors. It’s difficult to work to navigate, and it starts right at the beginning. 

As a former employee of small to medium-sized organizations being acquired or merged, and as both an employee and a leader of several companies doing the acquiring, I can tell you there are few all-hands meetings quite like the one where the announcement is made that the organization will be entering this huge and exciting new phase. There is a moment of excitement for new possibilities as the news breaks – but for executives, senior managers, and front line employees alike, that excitement quickly dissipates, and is replaced by uncertainty and anxiety. You soon start asking yourself, “what does this mean for me?”

I have watched high potential employees be laid off due to lack of insight into workforce skills, others voluntarily choose to leave in high volumes, and the resulting plummet of morale and productivity for all.

Lack of Engagement Fosters Distrust

For employees of both acquired and acquiring companies, the primary concern during M&As is job security. Will you still have a job by the time the merger is completed? Will your skills and experiences be relevant to this new organization? How will you make these skills and experiences known to a new network of colleagues, especially those in different offices or even different countries? I’ve watched many co-workers update their resumes the moment a merger or acquisition is announced and leave the organization before the integration plan is even underway, simply from anxiety of a potential threat to job security. The fear runs so deep that they don’t even stick around long enough to see if that threat materializes into a valid concern before making a change! 

Maybe you are lucky and it’s clear your job is safe. Let’s say you’re in sales, and a merger with a competitor means the pipeline has doubled. But you were on track for a promotion, and now there are more tenured sales team members that are also vying for one as well. What is your path for growth now? Someone has to work on a new pitch deck, and teach all the new team members new processes, but you also have to hit quota and fulfill your existing responsibilities. Sounds like double the work but with half the opportunity as before, right?

Addressing these doubts and concerns requires a regular, time-consuming communication strategy, and carefully crafted messaging in the form of regular email campaigns, town halls and committee updates. The time in between these scheduled messages is a communication desert, during which my colleagues and I grew tired of changing priorities, learning new systems, and working with new people whose styles did not align with our own. Without detailed communication, early and often on what these changes mean for individuals, I’ve witnessed this uncertainty, additional workload and lack of clarity all push employees to look outside of the company.

An Incomplete Skills Inventory

Being in a leadership position during an M&A process is just as challenging. The first of these challenges is a lack of holistic skills inventories, and more importantly, an easy way to deploy and leverage these skills in the new, emerging organizational structure. For example, let’s say the acquired business doubles your Business Intelligence team number: do you really need a team double the size? Maybe not – but that doesn’t mean that your team members don’t have other skills the combined business now requires. Due diligence will give insight into the BI skills, but in my experience, not additional skills those individuals bring to the table that they are not leveraging in their current roles. We may think that layoffs are a natural part of merging businesses, but years after letting go of employees whose roles were no longer needed, today I realize that though there were specific roles we no longer needed, letting go of the people themselves was almost literally throwing the baby out with the bathwater. How short sighted it was, not to mention what a waste of time and resources, to let one set of employees go, while simultaneously contracting recruiters to hire externally for other positions we needed!  

And this was at a small company, too – I can’t imagine the inefficiencies and, frankly, lack of compassion, this creates in larger workforces.

Culture Shock

Another major challenge is the blending of systems and cultures. Creating strategic plans for integration requires a lot of time, let alone implementing them. And many operations leaders are tasked with these efforts on top of their existing workload. 

I know I was. 

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The tactical integration of systems and processes was exhausting, but the truly emotionally draining part was the social integration. Defining new cultural norms and communicating them may be less technical, but it’s even harder to pull off than combining operational systems. It entails dictating to a large number of employees how they’re going to change the way they’ve been working for years. When push comes to shove, people just don’t like change, let alone being told what to do, or how to do it. When employees have no agency, they will naturally be opposed to change. Selecting a committee with members of both organizations to create a new culture code, hosting small feedback sessions, or other symbolic gestures to bring employees into the fold are valiant efforts, but at their core, they are still activities that center a small subset of employees only. For the majority of employees, they’re still being told in a one-sided way to change how they’ve been working for years. 

M&a Fail

Organizational Quicksand

The greatest challenge for the organization as a whole lies in transforming the business while maintaining employee investment in the desired business objectives in the weeks, months and years after the initial news of the M&A is delivered. Without comprehensive skill inventories and systems to deploy those skills toward business goals, cohesive cultural and social harmony, and transparent communication, I have seen employee patience and interest wane after months and years of being told what to do without consultation and consideration. This led to burnout and frustration, which translated to low engagement and friends and colleagues leaving left and right. The vicious cycle continued, turnover leading to more frustration, which led to even lower engagement, which led to additional turnover. It became a quicksand pit from which it felt impossible to climb out. Given all these challenges, it should not come as a surprise that up to 9 out of 10 of M&A efforts fail. But most companies are simply taking the wrong strategic approach, only targeting the symptoms of employee engagement, communication, and operational efficiencies rather than looking to address the root cause.  

A Better Way

There is a fundamental lack of visibility into how individuals themselves can be part of the M&A process in a meaningful way. The ultimate challenge with M&A centers around the need for transparency and democracy, and a solution must center the employee to be a creator and partner in the process. 

A talent marketplace puts employees in the driver’s seat by granting them true visibility into the opportunities created by M&A. These include the ability to network, mentor and be mentored by their new colleagues no matter the physical location. Projects outside of their day to day work to allow teams to learn more about the other business and its process and operations. Career pathing and open internal positions to connect employees to their next opportunity within the new combined organization, not outside of it.

The M&A integration plan therefore becomes informed by employees, not created for them. They create their own opportunities rather than being informed what the strategic plan is and expected to participate without ownership. The ultimate, bottom line business impact is an increase in engagement, a reduction in employee turnover, and greater success for the M&A integration overall. M&A has the power to transform an organization, and the individuals who take part. It is time that more organizations are successful in these efforts for the sake of not only their business objectives, but for the growth and development of their employees as well.

Were it not for my own experiences with M&As, which inhibited my ability to see growth opportunities and a viable future with them, I may very well have stayed with a previous employer. There has to be a better way.

What if, instead of looking at how to merely maintain employee engagement and retention levels, an M&A could actually improve these metrics? What if M&A truly brought more opportunities, not less, to employees and business growth? And what if it was easy to communicate this, with a system that made these opportunities transparent? What if any employee at any level could dictate their own involvement in the integration by simply logging on to see the opportunities for growth right in front of them, whenever they wanted, and could even create their own? With the talent marketplace, employees at all levels of merged, acquired and acquiring companies no longer have to ask the question “What does this mean for me?” with anxiety and angst, but with genuine hope, possibility and excitement instead.

Emma McHugh is a Senior Project Manager at Gloat, and contributed to the Gloat Blog through an opportunity on Gloat’s own Talent Marketplace.

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