Making mergers and acquisitions work: Strategic and psychological preparation

Abstract

Executive Overview Three out of four mergers and acquisitions fail to achieve their financial and strategic objectives. Because the nature of the combination process--such as the secrecy that shrouds negotiations--runs counter to the requirements of rigorous research, efforts to learn why so many combinations fail, and to understand the management actions that put combinations on a successful course, have yielded limited insights. As a result, mergers and acquisitions continue to be mismanaged and to produce disappointing results. This article draws from the authors' experience in over 70 mergers and acquisitions to understand the managerial actions that distinguish successful from disappointing combinations. It focuses on early efforts in the precombination phase that steer a combination toward the successful path. Precombination preparation covers strategic and psychological matters. The strategic challenges concern key analyses that clarify and bring into focus the sources of synergy in a combination. This involves reality testing of potential synergies in light of the two sides' structures and cultures and establishing the desired relationship between the two companies. And the psychological challenges cover actions required to understand the mindsets that people bring with them and develop over the course of a combination. This means raising people's awareness of and capacities to respond to the normal and to-be-expected stresses and strains of living through a combination.

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