Reasons Behind M&A Failures: A Leadership and Change Management Report

This report delves into the critical factors contributing to the failure of mergers and acquisitions (M&As), emphasizing the significance of cultural differences and effective change management. It begins with an executive summary outlining the primary challenges, such as cultural clashes, and highlights the importance of proactive change management strategies. The report then provides a detailed introduction to M&As, differentiating between mergers and acquisitions and outlining the goals of such transactions. It analyzes various reasons for M&A failures, including mismanagement, poor strategy, and cultural incompatibility. The report underscores the importance of considering cultural differences and developing plans to mitigate their impact, referencing case studies like Unilever's acquisition of Bestfoods. Furthermore, the report examines change management within M&As, the need for employee engagement, and the development of effective change management plans. The report assesses the importance of organizational structure and culture, and the impact of change management within M&As and concludes with recommendations for a successful integration process.

MERGERS AND ACQUISITIONS
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JANUARY 1, 2020

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Executive Summary
Mergers and acquisitions are performed with the main aim of expanding business operations
within the industry. To ensure the success of the organisation management of the organisation
is required to evaluate the environmental factors that may influence the activities within the
business organisation. Among the environmental factors, the cultural differences among the
business organisations are considered as a major factor that leads towards the failure of
M&As. The management is required to focus upon developing an effective process through
which change can be implemented within the organisation after M&A.
Developing such a planned process will help the management in managing the activities
within the organisation and ensure the success of the business in long-run. The process starts
with analysing the need for implementing change within the organisation, then engaging
employees within the change process as the human resource of the organisation influence the
success or failure of the planned process within the organisation. therefore, it is required that
the management focuses on the needs and requirements of the employees within the
organisation. The management is required to focus on the development of a team that would
effectively analyse the cultural differences and based on such analysis the management is
required to develop business policies that would result in mitigating the impact of the cultural
differences within the organisation.

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Table of Contents
Introduction................................................................................................................................3
Mergers and Acquisitions..........................................................................................................3
Change Management within M&A............................................................................................7
Developing an effective change management plan for M&As..............................................9
Conclusion................................................................................................................................11
Recommendations....................................................................................................................12
References................................................................................................................................13

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Introduction
Mergers and acquisitions are the business transactions under which two or more business
consolidates to form a single entity, operating under a single brand name and having common
business goals and objectives. A merger is legal aspect under which two organisations
willingly agree to consolidate their business activities and to work cooperatively to achieve
success within the industry, whereas in acquisition a bigger or financially strong company
within the industry acquire a smaller company with a motive to expand business operations or
to increase market share of the organisation (Hayes, 2019). The success or the failure of the
M&As depends upon various internal as well as external factors of the business environment.
The report is focused on analysing the reasons that led to the failure of M&As within the
industry and developing plans and policies through which the effectiveness of the
organisation can be ensured. Apart from the internal and external factors, the failure of the
M&A is also dependent on the cultural factors of the organisation. Therefore, the
management of the organisation is required to focus on different aspects to ensure the success
of the organisation. The report effectively analyses the key issues that the management is
required to focus upon and the necessary steps involved in the development of the change
management plan within the organisation, through which the organisation will be able to
ensure the implementation of change within the organisation.
Mergers and Acquisitions
Mergers and acquisitions can be defined as a concept under which two companies combine to
form a single entity. Mergers are the consolidation of the two organisations willingly to form
a single entity, whereas the Acquisition is the takeover of one organisation by the other.
Mergers and acquisitions are the major aspects of dealing in the corporate world. The main

REASON BEHIND FAILURES OF M&A 4
aim of mergers and acquisitions in business is that both organisations stand together with the
objective of wealth maximization and to achieve success within the industry. But most of the
Merger and Acquisitions fail to achieve the original objectives for the undertaking (Smith,
2003).
As while merging with an organisation or acquiring an organisation, the management can
analyse the external factors of the organisation and the financial statements of the
organisation, but the exact value of the organisation can be determined only when the deal is
completed and they have to run the business. At such stage, the success or the failure of the
merger or the acquisition is identified, and as a result (Bradt, 2015). The reason behind the
failure of most of M&As is the mismanagement of the organisation strategy, culture or
industry environment.
A study by Y. Friedman, A. Carmeli, A. Tishler and K. Shimizu, concludes that the mergers
and acquisitions are influenced by various unrelated variables that are required to be analysed
and an effective process is required to be adopted to ensure the success of the formed entity.
Some of the reasons behind the failure of such entity include human behavioural issues,
industry changes, and the organisational culture (Friedman, et al., 2015). The fact that
mergers and acquisitions fail to deliver the value is supported by Godfred Yaw Koi-Akrof,
the author explains that the integration stage is the critical area which leads towards the
failure of M&As, as the human factor involved in integration stage results in the failure, the
resources and the equipment involved within the process can be replaced or adjusted as per
the situational requirements, but the human factors involving decision making, effective
communication and the cultural differences are difficult to manage. Another factor involved
in the failure of M&A is the implementation of strategies within the organisation. A strategy
that is best in a particular case can be worst in some other case, therefore it is required that

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the management focus on developing strategies after the M&A is done and depending upon
the requirements of the newly formed entity (Koi-Akrofi, 2016).
The basic reasons that contribute towards the failure of M&As include; zero or limited
involvement of the organisation top-level management in conducting activities of the newly
formed entity, neglecting the requirement of resource analysis that are mentioned in the
documents at the time of the contract between the organisations. The poor managerial
capability of the merged organisation, therefore they are not able to take required decisions
and as a result, the organisation fails (Seth, 2019).
The management of the organisation is required to closely analyse the intercultural
differences and develop policies to avoid cultural conflicts within the organisation to make
the merger successful. Such cultural difference may be either due to geographical factors,
religion, profession, social life or due to gender differences. Considering and analysing such
factors is the key responsibility of the management so that the M&A can be proved
successful. As in 2000, when Unilever acquired Bestfoods, the merger was among the
world’s twenty largest M&As, Unilever identified the fact that identifying the cultural
differences and finding a solution is required to make the merger successful, therefore
Unilever work in the same direction and proved it to be a successful acquisition (Warter &
Warter , 2014).
The cultural differences are the main issue in cross-border mergers and acquisitions. Such
cross-border M&As are required for the acquisition of the innovative technologies, as when
two organisations from different locations interact, they came to know about new and
updated technologies that are being used worldwide, which can contribute towards the
development of the organisation if utilised effectively and efficiently. A study conducted by
F. Bauer, K. Matzler, S. Wolf, results that the cultural differences within the organisation,
due to M&A can contribute towards improved performance of the organisation. As a

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culturally diverse workforce includes the employees from different backgrounds and have a
diverse thinking pattern, therefore such workforce contributes towards increased innovation
within the organisation. From the managerial perspective, managers are required to analyse
such cultural differences, as such cultural differences may have a negative impact on the
innovativeness of the organisation, as various cultures fit better together and some are exactly
opposite of each other, therefore the study indicates that the cultural differences have a major
impact on the success or failure of M&As (Bauer, et al., 2016).
Apart from the individual culture, differences within the organisational cultures also impact
the success of the M&As, as the organisations having flexible organisational structure and a
culture that promotes innovation within the organisation, effectively adapt with the culture of
the partner organisation and lead towards success within the industry, whereas organisations
having rigid and complex business structures and tight cultures fail to achieve efficiency
within the business environment (Gelfand, et al., 2018). Mergers and acquisitions are
complex business decisions that require business management to focus on each factor within
the industry that may influence the business performance, and among such factors, cultural
factors play a significant role which should not be overlooked or underestimated (Farsi,
2017).
The impact of organisational culture on the success or failure of the M&A can be effectively
understood through the case of New York Central and Pennsylvania Railroad, both the
organisations were a long-time railway rival. Both the firm agreed to merge their business
and to become Penn Central, the sixth-largest corporation in America. Due to the nature of
competition that both the firms have faced for a long term, they were not able to adjust their
organisational cultures and within two years of the deal, the company filed for bankruptcy
and resulted in a failed merger due to the cultural differences (Jacobsen, 2012). Therefore, the

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business analyst and investigators consider that managing cultural differences within the
business organisations is the key success factor for the organisations.
Change Management within M&A
Mergers and acquisitions are the business transactions under which either two companies
merge willingly and act in the same direction, or the bigger company acquire a small
company within the industry and operate it as a part of the entity. Therefore, in both cases the
organisations combine with results in the integration of the physical as well as human
resource, organisations goodwill within the industry and the customer base. So, it is required
that the management of the newly formed organisation effectively evaluate the changes that
are required to be implemented within the organisation to make the deal successful and can
achieve the set goals and objectives (Faulkner, et al., 20122).
The management of the organisations are required to focus upon the cultural differences
within the workforce or at the organisational level, restructuring and reallocation of
organisational resources as per the goals and objective of the newly formed entity; and
develop an effective change management plans and strategies to implement the change within
the organisation, so that the organisation performance can be improved (Kansal & Chandani,
2014). The concept of change management is most important in case of M&As, to identify
the key areas where change is required and implementing the same focusing on improving the
organisational performance within the industry.
For implementing the change effectively within the organisation, it is required that the
organisations focus on the key areas before the deal between the organisations. Before the
deal, the management is required to focus upon the key opportunities and threats that the
organisation will have to face post-M&A and based on the assumptions it is required that the
organisation develops certain strategies to deal with the opportunities or threats. Such

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managerial practices help the organisation in managing change effectively within the
organisation. Such practices also result in the planning of the change activities within the
organisation which also integrates the interest of the employees with the organisation’s
success (Nelson, 2018).
The merger and acquisitions results in creating a new business environment for the
employees as well as management of both the organisation, therefore, it is required that the
employee engagement is ensured in the process of mergers and acquisitions. As the
employees that will be a part of the newly formed organisation are often anxious about how
the activities within the organisation will change and what will be their role in such a
changing environment. Ensuring employee engagement within the change process will ensure
that the employees can effectively understand the changes happening within the organisation
and also being a part of change process involves that employees provide recommendation and
review for the improvement of the process, and such recommendations should be considered
by the senior management to ensure the success of the change management process (Galpin,
et al., 2012).
Communication within the organisation also plays a vital role in the change management
process. as during the mergers and acquisitions, rumours within the organisation can result in
creating a negative impact on the organisation either within the organisation or within the
industry environment. Therefore, it is required that the management of the organisation focus
on managing effective communication within the organisation so that the employees, as well
as the business stakeholders, are informed about the progress within the organisation and any
doubt within their minds related to the change within the organisation can be resolved (Schar
& Manning, 2017).
Mergers and acquisitions are much more than just integrating the activities of the
organisation, it involves the integration of the operational synergies of the organisation along

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with integrating the human resource of the organisation. As the operational activities of both
the organisation is required to be integrated so that the strategies formed at a various level
should include the factors that may affect the working of the newly formed organisation. On
the other hand, integration of the human resource involves developing a positive attitude
among the employees of both the organisation so that they can effectively work together in
teams within the organisation and can contribute towards the organisational development and
growth. Combining both the integration approach within the change management is required
to ensure effective implementation of change within the organisation (Lund & Whitt, 2017).
The management of the organisation is required to make the necessary changes within the
organisational culture, so that it promotes the growth of the newly formed entity after the
M&A, and should implement effective leadership policies and strategies within the
organisation which can promote effective change management within the organisation and
can guide the employees to achieve the set goals and objectives of the organisation. Also,
making changes in the organisational culture promotes flexibility within the organisation and
such flexibility results in implementing necessary changes within the business process as per
the requirements within the industry (Insights, 2017).
Developing an effective change management plan for M&As
For the management of the change within the organisations after M&A, the management is
required to effectively develop a change management plan that can guide the employees
within the organisation towards achieving the business goals and objectives. The change
management process starts with identifying the key areas or the reasons for which the change
is required within the organisation. In the case of M&As, two organisations combine with an
objective of business development and to achieve success within the industry (Galpin, 2014).
Therefore, it is required that the strategic planning of the organisation includes the strength

REASON BEHIND FAILURES OF M&A 10
and weakness of both the organisations and evaluation of the business environment of the
merged organisation.
The next step after identifying the areas or the reason for the change is the integration of the
human resource with the planned change. As it is required that the employees of the
organisation effectively understand the need behind the change within the organisation and
work accordingly so that the changes can be effectively implemented within the organisation
(Weber & Tarba, 2012). The human resource of the organisation plays an important role in
change implementation process as if the interest and needs of the human resource within the
organisation are not managed effectively, or any communication gap within the superior and
subordinate level during the execution of the change management within the organisation can
result in the failure of the planned process within the organisation (Chung, et al., 2014).
The employee engagement can be ensured by adopting an effective leadership style within
the organisation, as a leader can guide and motivate the employee to work towards the
achievement of the organisational goals and objectives, along with providing the employee
with the sense of self-satisfaction while working within the organisation (Zhang, et al., 2015).
The change management plan developed should also include managing cultural differences
within the organisation as it is the major challenge that the organisation face during the
merger and acquisitions (Appelbaum, et al., 2009).
The implementation of the planned activity within the organisation is also an important
aspect of the change management process. As the activities planned by the management are
based on the assumptions therefore it is required that the planned process is flexible enough
to adapt any required changes within the industry. The flexibility of the plan defines the
success of the planned process within the organisation. To ensure that the organisation
effectively adapt the changes after the M&As it is required that the organisations focus on the
key areas that are being affected due to the change process and then implementing strategies

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that would help the organisation in mitigating the issues arising within the organisation
(Mulholland, 2017).
Conclusion
Mergers and acquisitions are an important aspect influencing the development of the business
organisation. As in the process of M&A, two business organisations having a different
business culture, structure and business process integration with each other with a motive to
achieve excellence within the industry and achieve success. But most of the M&A fails to
achieve success within the industry, as the management of the organisation fails to analyse
the factors that may affect the business performance in long run and as a result, they fail in
achieving the set goals and targets. The geographical factors, cultural factors and the
managerial capabilities of the organisation are the key factors that led to the failure of the
M&A. But among other factors, cultural differences within the organisations is considered as
a key factor due to which M&A fails. As the employees are not able to work cooperatively
due to the cultural differences and the efficiency of the employees reduces within the
industry.
Therefore, it is required that the management focuses on analysing the key factors that may
influence the business performance post-merger so that they can analyse the factors and can
develop strategies so that the issues can be resolved. The management is required to focus
upon developing an effective change management plan through which change can be
implemented within the organisation after M&A, and the activities can be guided effectively
towards the achievement of the set goals and objectives of the organisation. The plan starts
with analysing the requirements for the change within the organisation and then is required to
ensure that the employees are ready to adapt change within the organisation. The change
management process involves adapting effective leadership within the organisation so that