Mergers of equally sized companies seldom work – the integration challenges are large, you seldom get the promised (hoped for?) cost structure by eliminating duplicated functions, systems or staff, and it's a huge distraction to management.
I wrote about this a few weeks back in the context of the potential acquisition of Yahoo by Microsoft and was reminded of it again reading the NY Times this morning and its coverage of the Delta/Northwest merger.
In the past this particular challenge tended to occur most with public companies – one of the key words I looked for was "merger of equals" which tended to pre-sage a disaster in which the merged company became a shadow of its two former selves.
Lately I've seen a lot more mergers between private companies. With the IPO market effectively closed and many of the traditional acquirers focusing on their internal challenges because of the economic conditions, there are very few decent sized exits. There's a meme around Silicon Valley at the moment to look at private acquisitions as a way to get to scale faster or expand a market footprint.
In many ways this is a great strategy… as long as you go into it with your eyes open and with focus on the issues that can make the difference between success and failure of the merger/acquisition. Here are some issues to think about:
- Merger of equals is a real challenge and don't kid yourself, it's seldom two "equals" despite how the PR is spun. One company has to lead – with conviction and determination otherwise the result will be a shambles. You increase the probability of success when one of the companies is significantly larger than the other – makes for less indigestion!
- Appoint one individual from the beginning to plan and drive the merger process. This person has to have the power to get decisions made quickly. Give them as much power to make their own decisions (i.e. trust them!) and provide quick access for the bigger, far reaching decisions that need CEO or board review.
- Have a plan that results in ONE company – swallow the smaller one and integrate it quickly. Systems, people, products… everything.
- Make sure that every person affected by the merger knows their future quickly. Don't let people sit around wondering what is going to happen to them. Communicate this to the affected people upfront and preferably one-on-one.
- Streamline the board of directors upfront – this isn't about merging two boards into one – please don't do this, it will be a mess – but instead, figure out the structure of the new board and who will be a director of the combined company. Hint – although the ego of some of the directors will try and drive this, build a board that can help the CEO and management team the best.
- If the combined company isn't going to be profitable on the runway left with existing cash, get the investors to pony up enough capital to give the company the necessary runway.
Once you get part way into the merger, play Sheryl Crow's "No one said it would be easy" and give thought to the chorus…
"No one said it would be easy…
But no one said it'd be this hard."
PLAN, persevere and prevail!