Merging for the Win: The Business of Successful Partnerships

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While some businesses combine in what is politely called an "acquisition" – and less politely referred to as a "hostile takeover" – join in a merger, combining each other's resources, talents, and perspectives to create a new entity with a larger market share. Current advances in technology are making it easier for companies to assess the risks of a merger or acquisition, prepare for and proceed with the integration, and stay ahead of potential upsets. All in all, there has never been a better time for companies to consider a merger or acquisition; the risks remain, but the tools for avoiding the worst and managing the inevitable have improved and made it more likely for a well-considered merger to succeed.

Recent statistics suggest that more and more companies are taking this into account. Mergers and acquisitions worldwide reached a value of over three trillion U.S. dollars in 2016, with U.S. mergers totaling approximately $1.45 trillion (Statista, 2016). According to the Deloitte report for 2018, the growth of mergers and acquisitions is expected to continue, with the value of these mergers matching or exceeding those of 2017 and with the technology industry in the lead (Thomson, 2017). All mergers are not alike in the alignment of their goals, however, and the outcomes of these business relationships tend to bring out the best or the worst in the companies involved.

Faced with the prospect of a competitive position in the market, it becomes easier for business leaders involved in a merger to lose sight of differences that might seem trivial at the outset. According to Studer Group, 60 to 80 percent of mergers fail to accomplish their stated goals for the relationship, and culture is often the chief stumbling block (Studer Group, 2017). Michael Wiechart, former president and CEO of RCCH Healthcare Partners, defined culture as "the sum total of all the things you do and your results" (2017). When the culture of one company is different from that of the other, clashes are inevitable, and the leadership's proper handling of those differences is critical to the success of the venture. If those in leadership positions disregard cultural differences or downplay their importance, the cumulative effect of internal conflicts can eventually make it impossible for the organization to function according to its stated goals. In order to prevent such a disaster, the companies involved in a merger should know in the planning stages what advantages each hopes to gain – and what could stand in the way of gaining them.

Companies merge with the hope of securing certain advantages. In the case of a hostile takeover (acquisition), the advantages are sought by the acquiring company, possibly at the expense of the acquired. But in the case of merger, both companies enter into a contract expecting a mutual benefit and hoping for one or more of the following advantages: combined resources and an integrated client/customer base, an expanded footprint in the market and greater visibility, diversification of products and services, cost-cutting by integrating and streamlining operations, and survival during difficult times (Vaidya, 2016). Respecting the differences in the way each prospective partner does business is as critical as assessing what both have in common and how much more competitive they are likely to be as a team with their respective strengths and market share.

No company can afford to consider the advantages of a merger or acquisition without also considering the disadvantages. Aside from cultural differences, there are other potential obstacles that can make the venture more disadvantageous than otherwise: lax security in one of the companies involved, which could lead to devastating losses; insecurity and disorientation within the combined workforce, resulting in a difficult transition; and leadership clashes, which – depending on how they're handled – can tear an organization apart and result in a crippling loss of both talent and company morale. Often enough, the biggest obstacle has more to do with the failure of one or both of the companies involved to see beyond the short-term goals they hope to achieve.

In any relationship, there are things both parties can see if they are willing to look beyond the prospect of a golden honeymoon; there are also some things neither one can see coming, no matter how well they research the pros and cons of a merger. In the case of the merger between Microsoft and Nokia, their mutual desperation skewed the relationship from the beginning, making it impossible for them to assess and integrate their respective strengths, address the challenges they should have faced as equal partners with unique perspectives, and strategize effectively (Vaidya, 2016). Both failed to acknowledge the inherent weaknesses in the Windows Phone's OS and its relationship with the existing mobile app ecosystem, and this oversight yielded a series of disappointments that ultimately led to Microsoft re-allocating its resources and writing off the $7.5 billion acquisition as a loss (Vaidya, 2016).

Businesses that hope to create lasting relationships through well-planned mergers and acquisitions need more than ever to learn from the mistakes of those that have preceded them in undertaking this challenge. They should also take advantage of the advances in technology designed to help with the planning, measuring, adapting, and long-term strategizing to, as far as possible, prevent or mitigate the short- and long-term costs and maximize the profitability of mergers and acquisitions (Thomson, 2017). A merger, like any long-distance relationship, requires an objective and clear-sighted view of the present – the complicating factors that already exist – and a big-picture view of the relationship's potential and the challenges it is likely to face.

References

Statista (2016). Mergers and acquisitions: Statistics and facts. Retrieved from https://www.statista.com/topics/1146/mergers-and-acquisitions/

Studer Group (2017). Merger success and culture: Lessons learned from healthcare leaders. Retrieved from https://www.studergroup.com/resources/articles-and-industry-updates/insights/february-2017/merger-success-and-culture-lessons-learned-from-he.

Thomson, Russell. (2017). The State of the Deal: M&A Trends 2018. Deloitte Developmental LLC. Retrieved from https://www2.deloitte.com/content/dam/Deloitte/us/Documents/mergers-acqisitions/us-mergers-acquisitions-2018-trends-report.pdf

Vaidya, Dheeraj (2016). "Successful mergers and acquisitions | Key Drivers, examples, case studies. Wall Street Mojo. Retrieved from https://www.wallstreetmojo.com/successful-mergers-and-acquisitions/.