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TheM&AParadox:Factorsof
SuccessandFailureinMergersand
Acquisitions
ByYaakovWeber,ChristinaOberg,ShlomoTarba
Jan16,2014

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OrganizationalBehavior
Researchersandcounselorsfromthefieldoforganizationalbehaviormaintain
thattheprimarycauseoffailureinmergersandacquisitionsisthelackof
considerationofthehumanfactorduringtheprocessoftheplanningand
implementationofthemerger.Inotherwords,evengiventheconditionsof
successaccordingtothefirsttwoareas,namely,paymentappropriatetothe
acquiredcompanysvalueandtheM&Abeingconductedbetweentworelated
organizationswiththepotentialforsynergy,thehumanfactormightcausethe
mergerfailure.Managersandworkersthatdonotadjusttothemerger,
consciouslyorsubconsciously,astheconsequenceofculturalormanagement
styledifferences,causeconsiderablecostsanddisabletheexploitationofthe
synergypotential.
Followingcomprehensiveresearchperformedinrecentyearsandthe
accumulatedexperienceinmanymergers,itisknownthat,inessence,the
mainfactorthatinfluencesthemanagersandtheworkers,primarilyinthe
acquiredcompany,isthedegreeofthemanagement/organizationalculture
differencesbetweenthetwomergingorganizations.Whenthedifferenceof
themanagementcultureisconsiderable,themergerisfatedforfailure.

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(Management/organizationalculturedifferencesexistbetweenorganizations
ineveryfieldandineverycountry.Internationalculturedifferencesaddtothe
differencethatexistsbetweentheorganizations.)Thus,theCEOofDaimler
Chrysler,theGermanJuergenSchrempp,maintainedthattheAmericanJames
Holdendidnotsucceedinadjustingtohismanagementapproachthat
includes,forexample,apolicyofcuttingexpensesandongoingreportingofthe
importantdevelopmentsinChryslerandthusinducedongoinguncertainty.
Figure1.1,whichisbasedonresearchconductedintheUnitedStatesand
Israelincludingdomesticandinternationalmergers,explainstheimpactof
culturaldifferencesonacquisitionsuccess/failure.

Figure1.1TheImpactoftheManagementCultureDifferenceson
theSuccessofMergersandAcquisitions
Thisfigureindicatesthattheculturedifferencescausetension/pressureand
negativeattitudesamongmanagersandworkers,primarilythoseofthe
acquiredcompany.Followingthetensionandnegativeattitudestowardthe
acquiringorganization,thecommitmentofthemanagerstothesuccessofthe
mergerisimpaired.Inaddition,thelevelofcooperationbetweenthetwosides
greatlydeclines.Thus,seniormanagersintheacquiredcompanyabandonthe
companyandmovetocompetitorsortootherfirms.Thisdepartureof
managers,mostofwhichoccursinthefirstyearafterthemerger,isfoundin
researchstudiestoberelatedtothedeclineinthefinancialperformancesof
themerger.
ItisnotsurprisingthatAmosMichelson,theowneroftheCanadianCompany
Creo,whichpurchasedthepreprintingdivisionoftheIsraelicompanyScitex,
said,1yearaftertheacquisitionwascompletedthatThismergerisnota
simpletask.Indeed,20ofthe25seniormanagersofScitexleftinthefirstyear
afterthemergerbecausetheydidnotwanttoadjusttothemanagementstyle
ofCreo.Attheendofthatyear,Michelsonadmittedthatthereturntothe
paceofgrowthof30percentayearthatcharacterizedCreobeforethemerger
wouldoccuronlyseveralyearslater.Actually,thecompanyneverreturnedto
theseperformances.
Theproblemofthedepartureofmanagersandkeypersonnelisespecially
exacerbatedamonghitechcompanies.Inthesecompanies,theprofessional
knowledgeisheldbythepeople,andtheabilitytodevelopandinnovateisalso
relatedtotheinteractionamongthepeopleontheresearchanddevelopment
teams.Inessence,amainreasonfortheacquisitionistheinnovativeness,
professionalknowledge,andtalentedpersonnel.Ifmanagersandkey
personnelleavetheacquiredcompany,thentheacquiringcompanyisleft
withoutthevaluethatitpaidfor.Itisnotsurprisingthatsuch
mergers/acquisitionsaredoomedtofail,especiallyiftheculturaldifferences

andtheirinfluencesarenotidentifiedandanalyzedaheadandtreated
immediately,before,during,andafterthepapersaresigned.This,ofcourse,is
importantineveryindustryandineveryarea.
Indeed,EliHorowitz,thepreviouschairmanoftheBoardofTeva,which,dueto
M&A,hasbecometheworldslargestgenericpharmaceuticalcompany,noted
thatWhencompaniesaremerged,itispossibletotransferaproductiveline
buttheorganizationalcultureisdifficulttotransfer.
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