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3 Common Reasons Why Mergers Fail

Updated: Aug 28, 2021

There are plenty of reasons why a merger can be great for your business. Some of the potential benefits include gaining a segment of the market you don’t currently have, break into another market, reduce the competitive field, add deeper or more broad function to your mix, gaining competitive intelligence, a deeper bench, to name a few. The economies of scale are also appealing.


The list of benefits sound great, and it smells a lot like winning. What is often assumed - and should never be - is synergy gains because of this transaction. The gains from synergy, require synergy.


 

3 COMMON REASONS WHY MERGERS FAIL

  1. Leadership misalignment

  2. Marketing strategy

  3. Disparate culture


 

There are plenty of failed mergers that demonstrate mergers are not easy, nor are they likely to be successful. According to an article appearing in Forbes.com, more than 80 percent of all mergers fail, and merging companies overestimate the synergies they will gain as a result of the merger. It only takes a few miscalculations concerning assumed future synergies for the numbers to be off by a long shot. Long story short, mergers are far more likely to fail than succeed and it is common to underestimate the amount of work that is needed to achieve synergies between the two.


There are a few high-profile cases of failed mergers to highlight the perils associated with mergers, before your company becomes entangled in one. At the very least, when the topic comes up in the board room, you will be better equipped to discuss a plan to align leadership, marketing strategies that work for each company – or how to test and measure tactics, and the culture of each company.


Ultimately, our job as revenue consultants is to help insulate your company from suffering a failed merger and to build and help implement a plan to drive revenue growth.


Consider this handful of examples of high-profile mergers that showcase these common causes for merger failure:

  • AOL and Time Warner. The $350B merger dissolved two years later, after the companies suffered a $99B loss. Why did they fail? The companies could not gel (no synergy), they suffered misalignment.

  • Arby’s and Wendy’s. The merger occurred in 2008, during a recession, with the hope of expanding into a new venture. Why did they fail? Bad timing with the recession and both companies continued to run as separate entities. This resulted in limited to no leadership alignment in the two company’s operations. Arby’s continued to suffer losses and was spun-off to a PE firm in 2011.

  • Quaker and Snapple. Quaker bought, then sold Snapple, suffering a $1.4B loss. Why did they fail? Quaker marketing strategy was applied to Snapple. This destroyed what had been a strong, fast-growing, and dominant Snapple brand.

  • Sears and Kmart. This merger was to position both retailers to compete against Wal-Mart. Why did they fail? Poor marketing strategy.

  • Sprint and Nextel. Employees began to jump ship which created instability in their operation, making it impossible to combat strong rivals in the industry. Why did they fail? Sprint culture (traditional) did not mix with Nextel culture (progressive). There was no synergy.


Leadership Misalignment

Leadership misalignment is already a very common syndrome suffered by businesses not involved in a merger situation. The merger brings two independent cultures and leadership teams under one organizational umbrella – you shouldn’t expect immediate synergy. Leadership alignment takes work.


We explored the topic of leadership misalignment as the leading obstacle to revenue optimization in a recent blog post. Taking note from the examples of failed mergers, the culture of each organization - and tactics to encourage and grow synergy - should be considered.


Alignment is the responsibility of the leaders at the top of the organization; the CEO must be aware and onboard with this or alignment will never happen. It takes a concerted effort, a series of intentional and ongoing acts by the leaders in the organization, to gain, and keep, alignment.


Marketing Strategy

When the merger occurs, it becomes critical to the success of the future of the organization, to examine the marketing strategy that worked well for each company, independently.


In a merger, and especially in the area of marketing and sales, if the merger results in one unified marketing team, and one unified sales team, the marketing and sales strategy for each company may still need to be different, despite running as a unified team. You would never abandon strategies that proved to be effective, because of a merger, because one of the two companies did not subscribe to the strategy. More simply put, if it works, keep doing it!


If the companies are remaining independently operated, running as separate entities, the companies can attempt to leverage economies of scale through a test-and-measure approach for tactics that have worked well for the other company. Much like dipping your toe in the water to test the temperature, you wouldn’t need to jump in fully until you have proven a strategy or tactic works well. In this independent entities scenario, more focus can be placed on the optimization of processes (Business Systems, dashboards (accountability), workflows, acceleration through the sales funnel, and gaining economies of scale through selectively combined initiatives (i.e., media buys, social media, similar or shared events, etc.).


Disparate Culture

Every company has its own distinct personality: its policies, culture, marketing, and advertising strategy, strengths and weaknesses, employees, and more. Going the merger route can be a great idea. Doing it successfully, however, requires a mindful approach to what made the company successful pre-merger, the goals and desired outcome from the merger, and a strategic and operational revenue growth plan.


Wherever people gather, there will be culture. If a company’s culture has proven integral to the growth of their brand, it is the employees and this culture that has to be preserved to continue its success (think “Snapple”).


The culture of a company can be engrained in the organization in these areas:

  • Values and goals

  • Employee retention

  • Diversity

  • The foundation for informing how and why the company operates in the way it does

  • Commitment and loyalty of employees and customers, to ensure continued brand success

  • A marketing advantage (recall how Snapple’s brand was damaged by being forced to follow Quaker Oats marketing strategy)





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