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How To Merge Companies |
Mergers have to make sense, not just financially, but also technically, marketing-wise, and culturally. That isn’t easy.
Many mergers fail because the merged company is too hard to rationalize; that is, the pieces just don’t fit together in any sensible way – customers, markets, products, employee skills, business models.
There’s a long list of failed mergers from the past that acts as a cautionary tale. Often, very large mergers are the least likely ones to work. However, with enormous amounts of pre-merger planning, an emphasis on integration and product-line rationalization, and a willingness to cut both products and people, where required, unlikely mergers can be successful.
A few companies have made a business of growing by merger or acquisition. They have a very specific way of doing that and as long as they stick to their model, it usually works. Computer Associates (until they started making very large deals) and Symantec jump to mind as successful buyers and integrators.
We have some rules of thumb by which we judge proposed mergers or acquisitions:
Size matters. It helps if one company is clearly much bigger than the other, so there’s no question of who’s in charge and who’s going to have to change.
There are no perfect matches, but some matches are much better than others. The best matches, we’ve noticed, are those where both companies have a lot to gain – they can each sell their products to the other’s customers, for example, because there is little product or customer overlap.
On the other hand, it helps if there are the makings of a common culture because everything is eventually going to have to be rationalized – business models, sales models, service and support philosophies, attitude toward customers, organizational culture, and so forth. If everything is a mismatch and will need to change, the cost of integration and rationalization will be high, take long, and produce many casualties in lost customers and staff.
It’s easier to accomplish a merger if the head of the merged company isn’t going to run it as an autonomous division or unit, particularly if he was its founder. If so, he’ll continue to think of himself as independent and potentially fight every overarching company policy. If he’s good at something – product development, business relationships, vision –sign him up – but place him in an appropriate role.
Make sure you know WHY you’re buying another company. Will it give you access to new markets? Increase your customer base in a sustainable way? Provide you with durable new technology that you need? You will make significant investments, not just in buying the company, but in integrating it and in compromising; those investments need to be justified by reasonably large pay-offs.
Don’t let an available acquisition divert you into an unsustainable strategy or away from a successful one. Too many companies just can’t pass up a good merger or acquisition opportunity. Opportunities are only good if they take you somewhere you want to go.
We’re going to continue to see lots more mergers and acquisitions, both upline and downline. Many of them will turn out to have no or negative value. That will be because they broke these rules or the merger was poorly managed.
That doesn’t mean resist the urge to merge. It means think, plan, decide, assign adequate resources, and above all, manage your goals.