Mergers and acquisitions (M&A) activity is booming. From the $68 billion CVS-Aetna deal to the $27 billion merger of Microsoft and LinkedIn, 2017 set records with more than 50,000 deals, valued at $3.7 trillion. This momentum is continuing into 2018 with the bidding war for UK media company Sky ($24–$30 billion) and Microsoft’s $7.5 billion acquisition of GitHub.
Yet while mergers can offer a tremendous opportunity for expanding a business and creating value, they can be extremely disruptive — and handling the organizational changes of M&A is essential for realizing its benefits.
What ensures that M&A-driven reorganizations are successful? We took this question to our data. Over the past year, we carried out an online survey of 2,500 reorgs (you can still complete the survey and benchmark your reorg here). We compared the results of M&A-driven reorgs with other forms of reorgs to provide fact-based advice for executives.
Our analysis shows that M&A-driven reorgs share many of the characteristics of other types of reorgs: success (or failure) depends on the clarity of objectives, the comprehensiveness of the design (structure, people, and processes), and the robustness of implementation planning. Hence, executives leading M&A-driven reorgs can learn from the experiences of non-M&A reorgs. However, M&A-driven reorgs do differ in important ways, and those differences make them more difficult to manage due to the nature of merging at least two completely separate companies. Specifically, M&A-driven reorgs:
- involve more of the organization than other types of reorgs (around 40% and 30%, respectively)
- last longer (about 14 months, on average, as compared with 12 months for other types of reorgs)
- consume more of leadership’s time (41%–60% of their time, on average, as compared with 20%–40% for other reorgs)
- lead to greater resistance from both leaders and employees (66% of M&A-driven reorgs face significant employee resistance, as compared with 50% of other reorgs, and in more than 50% of cases leaders are resistant, as compared with 40% in other reorgs)
- see business results suffer more during the organizational changes (over half of M&A-driven reorgs see significant and very significant drops — of more than 5% and more than 10%, respectively — in the operating metrics of the units affected, as compared with 33% for other reorgs)
Overall, M&A-driven reorgs and other reorgs have a similarly disappointing chance of total success (meaning delivering all desired outcomes in the planned time). According to the survey we’ve been running on HBR.org, only about 11% of M&A-driven reorgs achieve total success — a terrible statistic for such an important management initiative. Even more striking is that many more (28%) have a negative impact on the business (as compared with 17% of other types of reorgs).
Only about half of M&A-driven reorgs set business targets for organizational changes — not much different from other reorgs. Yet earlier research we conducted for our book suggests that setting quantitative targets is essential for driving success.
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More than other types of reorgs, M&A-driven ones tend to involve leadership much more in the decision making (almost 75% of cases). This is one factor that correlates with reorg success, but only 25% of M&A-driven reorgs also include input from staff; our analysis shows that staff input increases the chances of success still more.
The most important factor driving reorg success is having a detailed plan with specific change activities and milestones. M&A reorgs do a bit better than others on this — 44% and 38% do it, respectively — but this still means that most do not bother. In fact, nearly one-third of M&A-driven reorgs do not have a plan for organizational implementation at all.
As highlighted above, M&A-driven reorgs take an average of 14 months to deliver, with some taking up to four years, as compared with an average of 12 months for other reorgs. Yet, of those that achieved total success, more than half took less than six months, and beyond 18 months the chance of success vanishes to zero — a finding shared with other types of reorgs. It is worth considering this fact, given that many mergers set saving targets over a period of two to three years, essentially dragging out both the delivery of the value and the organizational changes and disruption.
In contrast to other reorgs, where there is no clear conclusion, our data suggest that changing about one-third to two-thirds of the new organization’s leaders during M&A increases the chance of success.
Finally, and importantly, M&A-driven reorgs tend to communicate the changes to staff more than other types of reorgs. But, like the latter, they tend to rely too much on email communication. Our data shows that face-to-face discussions between leaders and staff, as well as webcasts, tend to be more effective.
Mergers and acquisitions are more frequent than ever and larger in size. Yet making the organizational changes necessary to deliver success is not trivial. It requires careful attention to reorg design, implementation, and evaluation.