Merger and acquisition activity is on the rise, with 79% of corporate leaders and 86% of private equity leaders anticipating an increase in deal volume this year according to Deloitte’s 2024 M&A survey.  This increase in deal activity can often be a positive indicator of an increasingly robust economy. Mergers and acquisitions can also have positive, tangible business impacts post-transaction, such as enhancing growth, diversifying portfolios, or entering new markets.

However, a significant number of these deals fail to ever deliver the anticipated value. According to industry studies, between 70 and 90 percent of acquisitions fail (HBR 2020). Our data at ENGAGE shows that many of the factors behind these are around people issues.

1. Challenges at leadership level

The success of an M&A deal once closed relies heavily on clarity, commitment and involvement of senior leadership. While managers deeper in the business will need to play their part in the practical integration of the businesses and teams involved, leaders play a pivotal part in a successful integration. For example:

  • Leaders must be able to communicate a clear rationale for the integration and be able to engage people deeper in the business with it. While the rationale may have been clear in the minds of leaders as the deal was done, the projection of this to others is often flawed.
  • Leadership needs to be strongly visible as the integration takes place. Our data suggest that this factor is often underplayed in M&A situations, leading to either a lack of confidence or a lack of trust in leadership as the two organisations come together
  • Leaders need to be able to communicate a vision of the future that really motivates the two groups of people who have been brought together through the merger and, therefore, build their confidence moving forwards

2. Issues around cultural fit

Poor cultural fit is a prevalent reason for the failure of M&A deals. This issue often arises when the acquiring company misunderstands critical aspects of the target company’s values, beliefs and behaviours.  Cultural “gaps” or a lack of intentional effort to bridge them, can create a lack of trust between the merging entities, leading to friction and resistance during the integration process. For example:

  • At a fundamental level, there can be contradictions in the espoused values and behaviours of the two organisations coming together
  • Contrasts in communication style can lead to conflict, particularly around creating an aligned vision for the new entity
  • Employees from both companies might struggle to adapt to new processes and workflows, leading to reduced productivity and motivation levels

3. Challenges around maintaining employee engagement through an integration process

Mergers create uncertainty and anxiety among employees, which can result in a drop in employee engagement levels. Employee engagement and talent retention issues are often overlooked during the M&A process, yet they play a crucial role in the success of the integration over the long-term.  For example:

  • When employees feel insecure about their future within the merged entity, they may become disengaged, leading to a decline in performance.  Metrics such as productivity, customer/client service delivery and profitability levels can suffer as a result
  • These challenges can become even more polarised when talent in critical roles, who are critical to the company’s operations and success, decide to leave. The loss of such talent can significantly disrupt business continuity and impede the realisation of synergies anticipated from the merger
  • Finally, our work has found that engagement levels amongst leaders and managers in particular can drop during integration processes as the pressures on these layers of the organisation can intensify, leading to a “viral” effect of reduced engagement deeper into their teams

Conclusion

M&A deals are fraught with people challenges that can derail the expected benefits. Understanding and addressing issues through a leadership, cultural fit and employee engagement lens is crucial for companies to navigate the complex landscape of M&A and achieve their strategic goals.

At ENGAGE, we work in three practice areas, all of which can help organisations continue to drive performance during M&A integration activity:

  • We assess and coach both individual leaders and leadership teams as they integrate to help them get aligned and be perform effectively in the new organisation
  • We audit the cultural drivers of success and provide advisory help to optimise cultural integration
  • We track employee engagement levels through the whole integration period to optimise effectiveness by acting n the key drivers of both engagement and talent retention

We will be releasing three further blogs in the next few weeks to look at each of the key people challenges during integration covering the topics of leadership, culture and engagement, so do follow us to get deeper insights.