New M&As left leaderless for two and a half months

Feb 19 2008 by Nic Paton Print This Article

Everyone knows going through a merger or acquisition can be a challenging and unsettling experience. But it's no wonder nine out of 10 European M&As fail to deliver on their objectives when senior managers take a staggering 74 days to put in place new management teams, latest research has argued.

In fact, according to the study by consultancy Hay Group, it is often more than two and a half years before frontline operations finally get back to firing on all cylinders following an M&A.

This lack of urgency around leadership means many newly merged businesses are left leaderless and lacking strategic direction, it warned.

A quarter of the 200 major European M&As since 2003 studied by Hay had yet to achieve complete integration up to three years after the deal was done.

Among those that had completed integration, the average time taken was more than a year and a half, it found.

What this all meant was that more than nine out of 10 Ė 91 per cent Ė of corporate mergers fell short of their strategic aims or failed to deliver on the objectives that drove the deals in the first place.

Equally worrying, more than three quarters of the deals studied were yet to generate significant new value.

Hay's original research was published back in November last year, but the consultancy has now taken a more in-depth look at some of the management failings surrounding European M&As Ė and concluded that many organisations are seriously blinkered when it comes to prioritising management and leadership within their M&A.

David Derain, a Hay director and leader of its M&A work in Europe, the Middle East and Africa, said: "Leadership is the vital missing link in European M&As. The capacity to effectively integrate merging organisations lies primarily with the top team."

He added: "Our research underlines the need for speed: firms are taking too long to get the new management team in place, with a damaging effect on their business operations and ability to deliver."

The study also exposed an alarming lack of priority being given to leadership issues during both pre-deal due diligence and post-M&A integration.

More than half of buyer companies failed to review leadership capability as part of the due diligence process, while just a quarter made selecting a new management team a high priority post-M&A.

Yet leadership had a critical impact on an M&A's overall success, employee productivity and company climate, Hay argued.

Companies prioritising a leadership review at due diligence stage were almost four times as successful at delivering their merger objectives.

Almost a fifth of these companies also stated that their transaction was completely successful, almost twice the average among the 200 deals studied, and against just five per cent of firms that failed to carry out leadership due diligence.

Companies conducting a leadership review also reported higher employee motivation levels, up a tenth on average, while a quarter of those failing to audit leadership capability witnessed a downturn in engagement levels.

More than two thirds of companies prioritising leadership due diligence were satisfied with the post-merger climate of the new organisation, the Hay research found.

Close to half described the first 100 days as a "brave new world of opportunity", while a further fifth experienced business as usual.

By contrast, almost half of organisations neglecting a leadership capability review encountered a destructive climate.

A quarter described the new climate as "culture shock", with the same proportion again going as far as to call it "trench warfare".

"The lesson for corporate mergers is clear. Leadership needs to be a key focus of the due diligence process before the deal goes live, and given the highest priority once the integration process begins, if M&As are to prove successful," concluded Derain.