The M&A Second Wave – “The Walking Wounded” -- January 26, 2007 (Also appearing in the MBA NewsLink)

For those individuals remaining in a post-deal M&A world, it is too apparent that with the deal announcement, “the real work has only just begun.”  With global M&A deal valuation projected to exceed yet again $3 trillion in 2007 combined with the residual pressures within the mortgage industry, we can be assured of an active four quarters of media fodder and investor opportunities.  So why do some of these M&A deals succeed while others fail?  How can the combined entity efficiently manage both the internal and extended personnel in order to exceed shareholder promises? 

Within the acquired organization and to a lesser extent within the purchasing entity, organizational conflicts will escalate.  History presents the rationale for these actions that not only occur in the rank and file, but also all the way into the executive offices and boardrooms – a failure to achieve stated goals or synergies.  In fact, analysis of many recent “mega-deals” that were hyped as beneficial to shareholders and investors shows that in nearly 60% of the cases, the combined entity share price after 18 months is less than the pre-deal valuation.  Some M&A organizations remain in this languishing state for well over five years. 

As many of us know first-hand, M&A post-deal integration activities by their very nature are amorphous.  Their events are short-lived and constantly evolving with new duties and changing alliances supported by rapidly transforming office politics.  The traditional rules of engagement that sustained and nurtured the prior organization are now in flux, creating a second wave of M&A events far different than those that preceded the deal. 

For surviving personnel, these post-deal operational and process improvements can leave lasting negative impacts with morale, personal career paths, organizational culture, and of course both formal and informal communication channels.  You see, it is frequently these “non-deal intangibles” that create an environment for short-term success and sustainable growth.

It is this psychology of the remainders or post-deal “walking wounded” that can remain in M&A environments, creating a formidable but elusive organizational barrier for success among personnel, suppliers, and alliance members.  For these impacted individuals, five critical and traditionally problematic areas include:

• Esteem:  Manifesting itself in poor morale ratings, operational disruptions, and high-turnover, it can be one of the most difficult to properly diagnose and correct.  It requires long-term commitment and professional changes to repair the wounds. 
• Hostility:  Surfacing as resentment, discontentment, and aversion, previously productive employees can be found post-deal at the bottom of the organizational rankings.  If left unaddressed, the attitude that contributed to this poor performance can cross-pollute others resulting in expanding organizational resentment.  Triggered by an overload of emotional and physical reactions to change, the organizational impact can be significant. 
• Barriers:  As the organizational structure begins to solidify, territorial behaviors and attitudes will surface.  During the M&A post-deal events, these dysfunctional behaviors can be short-term and hard to address due to temporary alliances and team associations.  However, the harm caused to process and procedural integration efforts will be pronounced with symptoms that include a reduction in information sharing, excessive demands, and lack of respect for new ideas, innovation, or change initiatives. 
• Distortion:  A common trait among geographically separate teams or divisions, it manifests itself via miscommunication of events, strategy, and growth projections.  While frequently malicious in intent, individuals can be retained if warranted using a combination of close supervision and discretely accountable tasks. 
• Politics:  The political landscape of the combined organization can be foreign and confusing for personnel.  The framework of dealing with new relationships, functions, processes, and responsibilities distorts the messages being communicated by superiors and peers.  It is only with the quick reestablishment of career paths, performance measurements, and organizational progressions can this unquantifiable dynamic be pragmatically contained. 

It should be remembered, that the walking wounded will be an on-going challenge for post-deal M&A organizations.  The scars and events will survive with the remaining employees sometimes simmering just below the surface until a future catalyst brings them to forefront.  Unlike Herman Melville, we are seeking to avoid “To the last, I grapple with thee.”  If you are still unconvinced in the need for addressing the “intangibles,” then how will you ensure sustainability of integrated processes, organizational growth, and innovation with accelerated turnover, discontent, and disinterest?

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