A recent Fortune Magazine article summarized a study of 40,000 M&A deals, which found that 70-75% of them fail. The article indicated that “in their urge to merge, executives often buy a strategically misfit target, overpay for it, and fail to integrate it properly.” One of the main reasons many M&A deals fail to meet their goals is ineffective people integration. When two companies merge, it’s not just about financial targets or business plans; it’s about effectively combining people, cultures, and ways of working.
Combining Cultures
Every company has its own unique culture, which includes its values, ways of working, and leadership style. Company cultures drive how information is communicated, how decisions are made, and what is viewed as important. When two companies merge, their cultures often clash, leading to misunderstandings, conflicts, low engagement, and missed financial targets. Employees often feel unsure of their place or find it hard to work with new colleagues who have a different way of getting things done. To succeed, leaders need to understand both cultures and work to bring everyone together as a cohesive unit. This means finding common ground, bridging differences, and fostering an inclusive environment that respects both companies’ values – ultimately building the new culture of the combined company.
Decision-Making Processes
Just like every company has its own culture, they each have their own way of sharing information and making decisions. For example, one organization might prefer frequent informal discussions to encourage new and creative ideas, while another may favor fewer but more formal presentations supported by detailed data and research. Companies’ decision-making approaches can also differ significantly, reflecting their unique cultures, structures, and goals. Some prioritize open communication, keeping everyone informed, sharing ideas, and making decisions together through team meetings and feedback sessions. Others centralize decision-making, with leaders taking charge and sharing information selectively. The further apart the styles of the two merging companies, the higher the likelihood of bottlenecks and conflict.
Retaining Top Talent
Losing key employees during an M&A can weaken the company and make it harder to achieve the deal’s goals. If talented employees feel unappreciated, uncertain, or sidelined, they may decide to leave. Keeping top talent requires identifying key employees, listening to their concerns, and making efforts to show they are important to the new organization. This could include offering bonuses, growth opportunities, or one-on-one meetings to build trust and show that their future is valued.
Communication key to employee retention. M&A deals often make employees worry about job security, new roles, and the future direction of the company. Without clear and consistent communication, fear and rumors can quickly spread, hurting morale and productivity. Frequent and transparent communication builds trust, helps employees feel valued, and reduces uncertainty.
Aligning HR Policies and Systems
When two workforces merge, the approaches to compensation, benefits, career paths, HR policies, and other HR processes need to be aligned. Mismatches in these areas can lead to frustration and feelings of unfairness among employees. The process must be handled carefully to ensure transparency and consistency. Harmonizing systems and processes can help employees transition smoothly and reduce confusion, making it easier for everyone to focus on their work.
Conclusion
An M&A deal isn’t just about combining assets or reducing cost through synergies, it’s about bringing people together and creating a new organization with single culture and clear decision-making processes. Companies that prioritize this aspect of a deal are far more likely to achieve their goals and thrive. The success of an M&A deal often comes down to how well people from both companies are integrated. By focusing on cultural alignment, clear decision-making processes, retaining key talent, transparent communication, and harmonizing HR policies, businesses can set themselves up for success.
Bryan L. Olson
Founder & Managing Partner