Mergers and acquisitions (M&A) are complex transactions that involve the combining of two companies. While increasing market share is often cited as a primary reason for M&A activities, these transactions can sometimes fall short of this goal. Mergers and acquisitions fail for a variety of reasons, including cultural difference, integration issues, and strategic misalignment.
Cultural Differences
When two companies merge, there may be significant differences in the corporate cultures and values of the organizations. This can lead to conflicts and difficulty in integrating the two entities, resulting in a lack of collaboration and a failure to achieve the desired synergies.
For example, consider Google’s acquisition of Nest. Nest had a culture that was top-down driven with a visionary and vocal CEO. Google’s culture is more product-centric and bottom-up. It is known for giving engineers autonomy to experiment. To further complicate matters, Nest’s acquisition of Dropcam also resulted in cultural clashes. Ultimately, these culture issues led to the departure of Nest’s CEO.
Fractional C-suite executives are both insiders and outsiders at the same time. They are fully on board with the client’s executive team and leading their functional area of expertise. In this way, they are insiders. But, as newbies to an organization, they bring a fresh outside perspective to team dynamics. Fractional CXOs do not bring preconceived expectations from either side of a company merger, so their outside perspective allows them to identify concerns, drive collaborative solutions and head off cultural team derailments.
Integration Issues
Merging two companies requires significant effort and resources to integrate the operations, systems, processes and people of the two organizations. If the integration process is poorly managed, it can result in disruptions to business operations and customer service, leading to dissatisfaction among employees, customers, and shareholders.
A third-party assessment used to either derive or review an M&A integration plan can help fuel desired business outcomes. Business leaders, such as fractional C-suite executives, who have “been there, done that” offer an informed viewpoint and add value from due diligence to post-merger integration.
Strategic Misalignment
M&A activities require careful consideration of the strategic goals and objectives of both companies. If the strategic goals and objectives of the two companies are not aligned, it can result in a failure to achieve the desired synergies and increased market share between the two organizations.
Consider, for example, Unilever’s acquisition of Dollar Shave Club. Dollar Shave Club had sales of $152 million before Unilever paid $1 billion to purchase the company. Unilever did not have knowledge of the category before buying the company as it did not have a razor product. As the acquiring company, Unilever expected to sell more of its products direct-to-consumer, based on Dollar Shave Club’s success in the channel. The company also expected to sell more of its non-razor products to Dollar Shave Club customers. Neither of these things happened at the pace Unilever anticipated.
Experienced fractional executives can help evaluate sourcing goals and mitigate strategic misalignment. Such leaders often bring a perspective from multiple industries and can provide a vision on the future of each. It is safe to say that Unilever would have benefit from a stronger DTC business leader’s perspective that did not come from inside Dollar Shave Club. Such knowledge could have aided Unilever in setting expectations and informing its acquisition price.
Overall, M&A activities can be complex and require careful planning, execution, and integration to achieve the desired benefits. Failure to address the challenges and risks associated with M&A activities can result in significant financial losses and a failure to achieve the intended strategic objectives. Fortunately, fractional C-level executives are accessible to lower middle market and larger companies to help navigate the complexities of M&A from sourcing to post-merge integration.
