I just finished reading an excellent piece from Robert Lieb in January’s DC VELOCITY. From 2008 until 2014, there were relatively few large scale acquisitions, but the pendulum sure has swung mightily the other way.
The reasons for these vary, but some of the primary ones are to support earnings growth, achieve scale, broaden service offerings, expand global geographic coverage and to increase market share. In some cases, the purpose was acquiring assets, talent and/or customers to gain knowledge in targeted industries.
One of the things I loved about Lieb’s article was the focus on post-acquisition challenges. “Substantial research has shown that less than half of all mergers and acquisitions generate the benefits that were expected by management.” Here were the top three challenges that were noted:
- Leadership changes – executives who have guided the acquired company may leave the combined enterprise. How many times has that happened?
- Employee morale – the fear of potentially being fired often leads talented people with the greatest market value to leave first. If the transition is not managed well and the exodus of talent is too severe, there is a significant risk that the loss of intellectual capital will impede the transition and business benefits.
- Systems integration – more often than not, the combined companies will continue to operate separate accounting, transportation and warehouse management systems for a considerable period of time. “This is a less –than-optimal situation and often leads not only to a lag in the realization of cost savings, but also to interface problems with 3PL vendors, alliance partners and customers.” Customers usually have enough stress “…from uncertainties about the quality of the services they will receive from the merged enterprise” as well as their relative importance and priority.
What are the immediate implications? Well 13 of the 30 CEOs involved in DC VELOCITY’s 2015 surveys believe the current trend will trigger more acquisitions that are defensive in nature. In fact, 6 said that they may be acquisition targets. Is bigger really better? Can this last? I don’t believe so as history shows continuous cycles in this regard. More importantly, these large combined companies will have challenges keeping up with the continuous pace of change and omnichannel demands.
One of the great leaders I had a chance to witness was Jeff Papows, CEO of Lotus prior to the acquisition by IBM, certainly a tremendous case study of the challenges noted above. I respected and resonated strongly with the Lotus vision “Forward Looking, Looking Forward” not only then, but even more today. Jeff was recently named CEO at ShopAdvisor, a mobile proximity company leading the pack in location-based marketing innovation, using beacons and geo-fences. “By providing information tuned to shopper’s explicit preferences at the right frequency at the right location we were able to deliver record breaking campaign results for our clients.”