These are high times for mergers and acquisitions. In 2014, corporate mergers and acquisitions (M&A) worldwide reached a seven year high of around $4 trillion. KPMG’s 2015 M&A Outlook Survey Report was headed “The Boom is Back: M&A Reemerges as Leading Growth Strategy”.
“Boom”? Does that sound like a good time to be the leader of a business about to be part of a merger or acquisition?
Maybe. But even the most optimistic figures about mergers and acquisitions show that no more than 50% are successful. It’s clearly a high risk business move.
Then again, no risk, no reward.
In this first post of a two part series I look at some general issues affecting leadership of a merger, providing a context for discussion in the following post of key areas of leadership skill required.
My focus is on mergers, where two companies voluntarily combine (“merge”) and pool their resources, so as to form a new entity that can compete more effectively in the marketplace, rather than on acquisitions, in which a larger company buys most, if not all, of a target company’s ownership stakes and assumes control of the target firm.
Depending on the size of the merging companies there may be either a few leaders or many who are actively engaged in orchestrating the merger process and steering its implementation.
There will almost certainly be some sort of merger leadership team or action group, but someone will need to be in the “buck stops here” overall leadership role, say the CEO or Managing Partner of the new, merged entity.
For convenience, I’ll say CEO.
Reasons for a Merger Must be Clearly Agreed
It’s essential for a merger’s success that all the parties have a clear, explicit, mutually agreed understanding of the reasons for the merger. Obvious as that may seem, one of the problems that can arise is when people in the two merging companies or sections of them, say sales or production, have different perceptions or interpretations of the reasons, even when there has been an official statement of reasons.
There can be a variety of reasons for a merger, but the particular reasons need to add up to an agreement between the merging companies that the merger makes sense because of:
- complementarity of the two businesses, pointing to a potentially profitable synergy
- improved market reach/impact, which will often include improved geographical reach
Adaptive Leadership Required
Insofar as every merger is between two corporate entities to form a new one, every merger is a journey into uncharted territory.
The success of a merger will require purposeful, astute, agile, adaptive leadership.
And leading from strength: in other words, focusing more on the respective strengths of the leadership team than on any weaknesses in the capability or delivery of individuals.
The CEO may be exceptional in all the areas of skill and expertise needed to achieve a successful merger, but it’s more than likely that he or she will want to spread the load and rely on others in the leadership team to have direct, day to day responsibility for some areas.
My experience of successful leaders is that they generally know their own strengths and are astute in identifying the complementary strengths of individuals in their leadership team.
That will work for the people the CEO knows already, assuming the CEO is coming from one of the merging companies. That knowledge will need to be complemented by quickly reaching an understanding of the leadership strengths of team members who are coming from the other merging company.
Effective, strength-focused delegation of responsibility may require some divergence from established “pecking orders” in the merging companies, which could create some tension.
That needs to be managed, but as every leader knows, sometimes a bit of tension can be good for bringing to the fore the real strengths, and weaknesses, of individuals and a team.
The CEO responsible for setting up and implementing a merger will benefit from listing those areas of leadership skill needed, then mapping those to the key strengths of individuals in the leadership team, so that all areas are covered. That should include identifying the people best equipped in terms of personal strengths to stand in for the CEO when necessary.
Everyone on the leadership team should be clear about what each others’ strengths are, and which individuals are carrying direct responsibility for specific areas.
In the next post in this two part series I share a list of seven key areas of skill which the key leader of a merger needs to exercise. Some of these will lend themselves more readily than others to delegation.
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