Why do so many private equity mergers and acquisitions fail? On paper, you would think that most mergers should succeed. In reality, they are likely doomed to fail. Some thought leaders estimate that as many as 70% of M&A (merger and acquisition) transactions fail. They don’t reach their financial results, the strategy doesn’t play out as it should, and turnover rates are significantly higher than expected. This creates undue stress on employees and slows the overall performance of both companies as they come together.
Why are private equity mergers and acquisitions so delicate? What can companies do to increase the chances of success? After exploring a mergers and acquisitions dataset we came up with three reasons why mergers and acquisitions fail and how these failures can be prevented.
Employees Are Put Off By the New Environment
There are a lot of uncertainties that come with private equity mergers and acquisitions. There are smaller changes like new healthcare providers and larger changes in management, office space, and company culture. This is a lot for any team to handle, even a resilient one. Many leaders find that flourishing teams in one space flounder in the wake of a merger or acquisition.
“My observation is that if you’re lucky enough to find [great] people and create a productive environment with them, it’s very easy to destroy that atmosphere when a new leader arrives,” Richard Kestenbaum, M&A expert, writes at Forbes. “Making improvements is great but when the improvements destroy the atmosphere that made a company succeed, it’s dangerous.”
It’s not unlike introducing a fish to a new tank. Even if the tank is nicer and bigger, the shock of the move (if not handled properly) can seriously harm the health of the fish. In this case, your employees are the school of fish.
The Top Talent Leave or Are Let Go In Private Equity Mergers and Acquisitions
Talent plays a crucial role in an M&A transaction. Leaders can hold a group of employees together and guide them through the changes, or they can let their staff fend for themselves and hope their new employer is good at communication. Unfortunately, many companies lose effective leaders and high-quality employees during a merger or acquisition.
Sometimes this is because the buying company doesn’t see the immediate value in one worker or a key leader gets laid off. This loss of influence in the company can cause lower-level employees to leave.
Other times, the company loses a significant source of knowledge when an older employee retires early or leaves because of the merger or acquisition. Suddenly, years of experience walk out the door.
In an effective merger or acquisition, the buying company needs to carefully identify the strengths of each employee and make sure they don’t drive away key performers.
Private Equity Mergers and Acquisitions Buyers Aren’t Sure What They’re Getting Into
There are multiple ulterior motives for acquiring an organization. Some larger firms might need to diversify their portfolio or want to acquire a small competitor before they grow into a serious threat. These motives often mean the larger firm doesn’t have the smaller firm’s best interests in mind. They aren’t as focused on what the change means for the company they’re buying as they are on what the new company can do for them. This leads to acquisition problems.
The smaller firm can experience higher levels of friction against their buyer and the staff can feel like their concerns aren’t being met. This leads to turnover and poor performance from what was once a successful company. The buying company now has to pay more and spend more time onboarding their acquisition before the asset deteriorates into a liability.
There are Professional Resources to Ease Merger Pains
Many of the risks associated with M&A transactions could be avoided with professional, third-party sources that specialize in talent management. Corban OneSource has comfortably worked with companies on mergers and acquisitions. we have helped several executives and leaders onboard their new staff. We have analyzed each and every mergers and acquisitions dataset for companies we have helped. We also have numerous Private Equity and Venture Capital firms as clients and what we learn from them we can apply to your situation. With the right team on your side, you can beat the odds and successfully add a new company or business to your brand.
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