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Why mergers succeed

(MoneyWatch) COMMENTARY As I've written before, the failure rate for mergers and acquisitions is dauntingly high. What most of the research says is: Don't do it! Of course, there are times when putting firms together is too compelling an opportunity to pass up. So how can you beat the odds?

Resist hubris. Don't imagine that this time it will be different -- it won't be unless the way you do your deal is different. So start with a mindset that says: This will go wrong unless we do everything perfectly.

Don't delegate. Most of the successful deals I've studied have been led by the CEOs personally. They did not hand over control or oversight to outsiders, such as lawyers or accountants. Instead, they negotiated everything themselves. That doesn't mean they didn't take legal and financial advice (of course they did). But they didn't hand over power or responsibility.

Why mergers fail

Scrutinize culture. Culture clash is a prime cause of failure in M&A. The cultural compatibility of companies is hard, if not impossible, to quantify, which is why such considerations often get swept under the counter. Changing a company's culture is also time-consuming, expensive, and unbelievably difficult. So spend time with the business and get your senior team to do likewise. Be honest with each other about how comfortable that feels. Would you like to work there? Would you recommend it to a friend? If not, pay attention to your own response.

Take time. One of the best mergers I've watched took about three years to complete. It started with a casual conversation between two CEOs, one of whom decided that the time wasn't right to relinquish or fight for control. About a year later, the strategic opportunities were so compelling that they met again and started to think about what could make the deal work. By the end of that year, each had a mental model that could be brought to the table and negotiated. By this time, they'd established a considerable level of trust, not least because each had been prepared to walk away.

Be discreet. Until the deal mentioned above looked feasible on paper, no one in the company knew the possibility even existed. That means it wasn't a distraction, and there was no public momentum either for or against it. Both CEOs took as much time as they needed to mull it over, visualize the outcome, and trade that off, in their minds, against the present.

Expect emotion. Both companies will go into mourning. The employees have lost their old company -- and there is no point denying it. You can (and should) try to psych them up about new possibilities, but this doesn't mean the feelings of loss won't be profound. Acknowledge that. If you have the wit and the courage, formalize it. Throw a funeral or a wake and articulate the change that everyone is going through. 

Take more time. Once the deal is done, getting the two businesses fully integrated will take at least a year, often more. Expect that. Make sure that this is because it's being done with care, not because integration keeps getting stalled. It has to keep moving, albeit slowly. After all, the deal on paper is just the start; it isn't a blueprint. The give and take of negotiation will be necessary for a very long time. It will also set a model for the rest of the workforce -- if you can be flexible, so can they. But be prepared: It takes a long time for cement to dry.

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