M&A is easily one of the “catchiest” things around. The mere reference to the term can make lots of heads turn to your direction, looking at you as if you are about to recite some sort of holy text.
But the truth of the matter is that M&A is a tough world to live in. One where failure is anything but uncommon. Even worse, it is a well-known axiom in the industry that “people tend to remember you not based on your number of successful deals, but rather, based on your most recent failure.”
And why do M&A deals fail? Mostly because they are not done on sensible grounds. And if you are thinking about inadequate people who are bad at math, think again.
There are two reasons why a firm would want to acquire another one: 1- To grow larger in its field and 2 – To build a certain capacity and otherwise differentiate in some manner.
Category 1 is usually successful because the potential pitfalls are small in number and impact. If the numbers are good, the deal will in all likelihood also end up being good.
Category 2 is trickier, however. The reason why transactions falling under this category usually fail, is because many M&A managers use the same benchmarks for these transactions, as for transactions falling under the first category. Unfortunately for them, numbers are not enough to make a deal of this kind to work. Rather, if you want to be successful in this field, you should be thinking of the transaction as a massive hiring endeavor (which is why having a CFO as the sole advisor on such a deal is a bad idea). If you are trying to build capacity in a new field, it is the people, their knowledgebase and their established working practices and relations that will make all the difference.
Enter culture.
By “culture” I am mostly referring to the aforementioned established work practices and relations of the newly acquired company. Too many M&A managers make the mistake of thinking that money is enough to bend everyone to their will, but piss enough people off and a critical mass will likely abandon the firm in the blink of an eye.
Which would lead to them spending a few EURm to end up with the tangible assets (which they could have bought without paying for goodwill anyway) and the worst employees of their target firm.