Companies seek to accelerate revenue growth or enter new markets through mergers and acquisitions. A great deal of excitement and justification surrounds the projected synergies and combined financial models.

Synergy: 1+1>2

Or is it?

However, as we all know, few companies realize the true value of the acquisition synergies. When M&A fails, it fails during integration. Much of the effort and capital spent on acquiring the target is sub-optimized or in many cases wasted.

In this piece, I’ll briefly cover what dynamics occur among the senior leadership team that erode synergistic value. And, I’ll discuss the two skill sets that the leaders of the combined entity must have to mitigate value leakage.

[The article was adapted from Matt Oess‘s original blog post]

However, as we all know, few companies realize the true value of the acquisition synergies. When M&A fails, it fails during integration. Much of the effort and capital spent on acquiring the target is sub-optimized or in many cases wasted.

In this piece, I’ll briefly cover what dynamics occur among the senior leadership team that erode synergistic value. And, I’ll discuss the two skill sets that the leaders of the combined entity must have to mitigate value leakage.

WHY M&A FAILS

A major failure mode of integration happens when the two leadership teams from the companies come together. The company’s executives create a detrimental amount of dysfunction when they unknowingly engage in the following:

1. Jockey for position – Who’s going to sit in what seat when the final org chart has been created? Even the most objective leader can’t help but worry about what role they and their close peers will play in the future state of the company.  Even when the CEO of the merged entity tries to paint a clear picture of his or her future organization, the senior staff knows that “the changes are never over” and “I have to look out for myself or I’ll end up with the short end of the stick”. The human mind is amazingly good at painting worst-case imagery of “what if I don’t get the role I want?”. This drives behavior that destroys alignment among leaders and marginalizes the intended synergies.
2. Protect my people – Executives can’t help but have a bias for and a comfort with those that have helped them to be successful in the past. As humans, we are also protectors of those we are closest to. And, we want what’s “best for our team”. This dynamic precludes objectivity when assembling the best possible team to lead the resulting company and limits optimal outcomes.
3. Bias toward “what got us here” – No integration meeting would be complete without several incantations of “That’s not how wedid it in the past” or “We’ve tried that before, and it didn’t work”. Fear is an incredibly powerful force that creates enormous risk and dire outcomes in the minds of the two leadership teams. These barely-detectable fears paralyze good ideas that should be implemented, but don’t. As importantly, these behaviors almost always ensure that the teams can not fully align. And, that dynamic destroys synergy.

Here’s the thing. I truly believe that people show up to do their very best and do so with the very best intentions. And, the leaders who exhibit the above  behaviors do so, unknowingly. The brain’s protection mechanisms kick in to protect our own best interests. It’s perfectly natural for the brain to create the fear-based stories in our subconscious that drive undesirable behavior. And, this is where the change management aspects of the integration erode tremendous value.

So, imagine what the combined executive team looks like, as a unit, from the stakeholder’s purview. Each executive is trying their best and is well intentioned. But, the brain’s protection mechanisms drives the actions of the individuals that combine to create a team that typifies mis-alignment, dysfunctional communication, and poor collaboration.

Before putting in motion all the strategies, goals, org charts, and tactical action plans necessary to realize true potential of a merger, something more important must take place. The two management teams must know about the attitudes and behaviors they are about to engage in. And, they must develop the emotional intelligence skills and support each other to navigate these tough waters.

NOW WHAT?

The first step is to take the unconscious actions and behaviors of these executives…and make them conscious.  

To that end, the first skill set that we must impart to the executives is self-awareness of the mechanisms in our brains that create the behaviors that will destroy the very stakeholder value that they wish to enhance. Left undetected, the executives will navigate through their natural gut feel, which creates the appearance of false truths and leads to dysfunction.

Second, we help the executives build and leverage the necessary observation and communication skills required to create desirable outcomes and support each other. By creating intentionality and dramatically increasing the true situational awareness skills of the individual executives, we drastically increase the combined team’s emotional intelligence (as a collective leadership unit). And, we add a new dimension to their leadership skill set.

This isn’t a one-and-done training. We plan during the M&A due diligence phase. We launch on day zero. And, we support every senior executive until integration is complete and we achieve the synergies. Only through this intentionality and constant focus can newly-formed companies avoid the pitfalls mentioned above.

TAMING THE UNICORN

Merger and Acquisition teams, CEOs, CFOs, and Board Members that are considering buy/sell/merge activity have the power to mitigate the risks and deliver the allusive synergistic value. Strategy and actions are necessary, but not sufficient. Call it an insurance policy. Call it intentionality. It’s a simple formula…

Synergy:

1 + 1 + Team Emotional Intelligence > 2

Every M&A deal needs a program to mitigate these risks. The earlier these skills and competencies are enabled across the entire executive team, the faster the M&A teams mitigate the integration and change management risks. The broader and deeper these competencies are driven, the faster M&A teams create the alignment, collaboration, and communication required to deliver the synergies of the acquisition.