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3. Inability to implement change.
4. Poor forecasting.
5. Excessive optimism with regard to synergy.
The last two are premerger problems, but the first three occur in the postmerger transition process.
Deloitte & Touche Consulting estimates that 60% of mergers fail largely because of integration
approach. Managers must understand that the acquisition closing dinner marks the end of one stage of
the transaction and the beginning of the process that will determine the deal‟s ultimate success or
failure. In this section we briefly discuss the following key components of a successful
implementation plan:
• Expect chaos and a loss of productivity.
• Create a detailed plan before the deal closes.
• Keep your executives happy.
• Speed and communication are essential.
• Focus managerial resources on the sources of synergy.
• Culture, culture, culture.
The process of merging two firms creates havoc at every level of the organization. The moment the
first rumors of a possible acquisition begin, an air of uncertainty and anxiety permeates the company.
The first casualty in this environment is productivity, which grinds to a halt as the gossip network
takes over. While the executives debate grand, strategic issues, the employees are concerned with
more basic issues and need to know several key things about their new employers, their compensation,
and their careers before productivity will resume. Managers must understand that this “me first”
attitude is human nature and must be addressed—especially in transactions where the most important
assets are people.
The first step in any postmerger implementation must be a detailed plan. We saw how Cisco maps
the future of every employee in a soon-to-be-acquired firm. For those continuing on, their new
positions and duties within Cisco are clearly defined from the beginning. The employees who will be
relocated or terminated are also identified, and a separate plan for handling them is created. Relocation
and severance packages must be generous to signal retained workers that their new employer is ethical
and fair. The second reason for a detailed plan is that it allows transition costs to be accurately
estimated. The costs to reconfigure, relocate, retrain, and sever employees must be budgeted, as they
can have a significant impact on postmerger cash flows.
The detailed plan must start at the highest levels of the organization. If executives from the two
firms are going to lead the transition, they must be confident of their future roles and comfortable with
their compensation plans. In the Daimler-Benz/Chrysler deal, there was a good deal of animosity
between executives as the German managers watched their American counterparts walk away with
multimillion-dollar payoffs from their Chrysler stock options while simultaneously receiving equity in
the newly merged firm. A fair incentive system must be in place at the corporation‟s executive suite
before any implementation plan begins.
Once the key managers have been identified, retained, and given the proper incentives, they must
carry the vision of the merger to the rest of the organization. To combat the productivity problems
discussed earlier, managers have two critical weapons: speed and communication. Remember that the
enemy from the employees‟ perspective is uncertainty, and absent timely information from above,
they will usually assume the worst. Executives must move quickly to convey the vision for the merged
entity and to assure key employees of their role in executing this vision.