MERGERS FAIL

Mergers fail



Mergers fail

Introduction

Mergers and acquisitions, M&A, business development, strategic development, corporate development, there are lots of names for the business of acquiring companies. They all sound important, even exciting. On the contrary, if you're like most investors, employees or executives, it's more of a curse. You see, in the corporate world, exciting usually means risky. And there's probably nothing riskier or more prone to failure than merging with another company. Some failed so spectacularly that the combined company went down the tubes, others resulted in the demise of the executive(s) that masterminded them, some later reversed themselves, and others were just plain dumb ideas that were doomed from the start (Baruch , 2005). Using empirical evidence, this paper discusses Robert Burner's statement that “The sobering reality is that about 80% of all mergers fail…..”. it also discusses why mergers fail and analyse why some mergers succeed.

Discussion

The amount of time and energy needed to successfully merge two sophisticated organisations is more likely to resemble the planning and execution of the invasion of Normandy, accompanied by the resultant clash of cultures from many elements attempting to work together towards one end. This corporate failure to consider and plan for the long-term consequences can result in financial problems, loss of employee loyalty, lowered employee morale and reduced productivity (Baruch , 2005).

However, although mergers and acquisitions are being aggressively pursued by companies, recent studies have indicated that 60-80% of all mergers are financial failures when measured by their ability to outperform the stock market or to deliver profit increases. While it is true that some of these failures can be largely attributed to financial and market factors, many studies are pointing to the neglect of human resources issues as the main reason for M&A failures (Baruch , 2005). Mergers typically fail for the following HR (human resources) reasons:

Lack of Communication

According to a survey examining the role of human resources in mergers and acquisitions, and based on responses from 413 HR directors in companies with 2,000 or more employees, 70% of the respondents cited employee communications as being one of the most important issues which needs to be addressed during a merger or acquisition process (Chupp, 1993).Poor communication between people at all levels of the organisation, and between the two organisations that are merging, is one of the principal reasons why mergers fail. Not only is lack of communication a serious issue for merging organisations, the deliberate withholding of information from employees on the part of the senior executives who are dealing with the merger is also a major problem, and contributes to confusion, uncertainty and a loss of trust and loyalty on the part of employees (Chupp, 1993).

Lack of Direct Involvement by Human Resources

As discussed in the previous section, the early stages of mergers and acquisitions (i.e., planning and negotiation) are often carried out in secret and do not usually involve human resources in the discussions. This lack of involvement by human resources can have a detrimental impact on ...