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Adapsys Insights – Mergers and acquisitions: After the deal, what?

Manuel José Pau, Paula Gómez and Diego Barroilhet

Market trends indicate a growing interest in business development through mergers and acquisitions. What do we need to work on -beyond the obvious- after closing the business? What are the least predictable variables that could jeopardize a good outcome? How to face these processes from an adaptive logic?

The merger of Daimler-Benz and Chrysler in 1998 is a good example of how big deals don't always turn out as expected. In theory, it was intended to mark the birth of a global automotive titan, combining high-quality German engineering with American mass production. This agreement also promised enormous synergies, greater market coverage, and a strengthened combination of talent and technological innovation. However, in practice, deep cultural and management differences between the two companies complicated the integration, leading to internal conflicts and a lack of strategic cohesion that ultimately undermined the expected benefits of the merger. Years later, these difficulties culminated in the sale of Chrysler, marking the merger as a notable failure in the history of corporate mergers.1.

This case highlights how company mergers and acquisitions processes represent challenges that go beyond the initial business and that, if not managed properly, can destroy the value that is sought to be generated. Although they are started with the intention of “doing a good business” - being considered strategic tools to achieve objectives of growth, expansion, improving efficiencies, incorporating capabilities or competitive advantages - the path is never easy or obvious. After the initial agreements and the conclusion of the deal, the effective integration of the operations and cultures of the merged companies results in a minefield where conflicts, delays and the loss of key talent proliferate.

Nowadays, the topic of mergers and acquisitions is very active. Data shows us that we are facing a dynamic market in which companies are taking bold approaches and exploring new strategies to take advantage of market opportunities. 79% of business leaders expect an increase in the volume of M&A transactions in the next 12 months, and also recognize that these types of transactions represented 43% of the deals pursued by their companies during 2023, compared to only 26% from the previous year2.

In this context of initial optimism and considering the multiple experiences that show the difficulties in integration between companies, it is worth asking what elements must be addressed to prevent it from becoming a headache. What causes it to fail? What is not usually taken into account when starting these processes? What patterns can be observed? Although there is no single recipe for a successful merger, understanding some common challenges can help the process go smoothly.

Those who have long been involved in these processes have identified some of the most common obstacles during integration: incompatible corporate cultures, which make team integration difficult and create internal tensions due to differing approaches to challenges; leadership issues, who sometimes have conflicting interests that prevent them from committing to the process and even lead them to directly oppose or obstruct it; difficulties in communication from the front line, which generate distrust and confusion among collaborators; failures in the integration of systems, processes and technology, which may cause errors, delays and disruptions in operations; financial problems, such as overvaluation of assets, underestimation of integration or operation costs and wrong estimates in business flows that may negatively affect the economic viability of the merger; loss of key talent, who, faced with uncertainty and the perception of a threat to their job security, does not observe the opportunities associated with the process and decides to emigrate; and finally, the lack of strategic alignment in the vision, objectives or long-term strategies between the merged companies, affecting the cohesion and key decision making of the organization. 

Identifying and addressing these challenges can significantly contribute to the success of a merger. However, reducing the risk of failure is not achieved only with better estimation or planning of the process. It is crucial to also have the ability to address these aspects from an iterative and adaptive logic. Understanding the different stages of the merger process - from its adaptive challenges and not only from its objectives, deliverables or tasks - contributes enormously to the success of the process. This implies aiming for the maturity of the integration from the beginning and continuously, and not only at specific moments. For example, during the negotiation and preparation stage of a merger or acquisition, emphasis is typically placed on processes such as “due diligence”, the review of legal agreements, financial evaluations and corporate and government approvals. However, facing this stage from an adaptive logic also requires focusing on strengthening trust among those who must facilitate integration later.

STAGEGenerally aims to…Putting emphasis on the adaptive logic involves…
Preparation and negotiationClosing the legal and financial aspects of the operation, along with anticipating challenges and preparing work on different integration fronts.Closing the deal while strengthening trust among those who will later facilitate the integration.
Transition Take the fundamental definitions of the merged or absorbed entity at the level of business strategy and structure (roles, systems and processes). Define -if applicable- the new first line and the transition teams.Showcasing the benefits of integration and managing the personal and/or group losses that will occur.
IntegrationImplementing the business and structural decisions made. Sustain people and work on culture and organizational purpose directly. Recognize what did not work or what is not going to work. 
Settlement and adjustmentIntervening or making focused adjustments to teams, areas, or projects still facing challenges from integration.Achieving the identification of all people with the current organization, overcoming the “pains” from integration.

What better opportunity than during the preparation and negotiation to know not only the technical details of the business, but also the style, culture and values ​​of the other party manifested in their behaviors during the negotiation? From the moment the parties sit down to talk, many are not aware that integration is already being generated and they are anticipating - often unconsciously - the ways of doing and being that will be consolidated in the merged entity. or absorbed.

Once the agreement is reached, the focus will shift to making the fundamental decisions for the merged or absorbed entity at the business strategy and structure level. This transition includes defining roles, areas, an operating model, and the systems and processes that will be used. This is usually a stage of anxiety for workers, as it involves a lot of uncertainty and little information. Beyond the announcement of the merger, few changes have been implemented, but it is known that “definitions are being made.” Typically, members of the new front line will be appointed and strategic decisions will be made that will be implemented in the next stage.

From an adaptive logic, these tasks and definitions must be accompanied by a consistent story, which begins to prepare the way for effective integration. This story must show the meaning and purpose of the merger, the expected benefits - not only at the business level, but especially the benefits for the people who will make up the new company - and the future vision. Likewise, deep listening work must begin to understand, recognize and manage the losses that the integration process will generate.

When we talk about losses, we are not referring to financial losses, but to the perception of loss in the face of change that people may experience. Job uncertainty and the possibility of job loss are significant concerns, but there are also more subtle and less obvious losses. These include the loss of status, such as when areas that previously reported directly now report to a second or third line, or the loss of corporate identity, when employees move from a highly recognized company to a lesser-known or foreign brand. 

Implementing the strategy and new structures during the integración It is usually the most painful and difficult instance to address, especially when measures are applied that imply great losses for people, such as plant adjustments and role changes due to deficiencies or redefinitions. Thus, this stage presents the adaptive challenge of supporting the people who, despite the perceived losses, must continue forward in the merged entity and, in addition, implement the change.

In this stage, all the technical and adaptive talent of the organization is tested, particularly its leadership. They are usually aware of the relevance and danger of not effectively addressing these aspects, but they do not always know how to do so. It is not only about getting people to adapt to change, but also about evaluating what has worked and what has not, making the necessary adjustments: approaching integration from an adaptive logic requires flexibility to the point of even -eventually- rethinking the process. and start again. 

This flexibility, although evident in theory, is not always easy in practice. Aside from the monetary and time costs already incurred, leaders expose their competencies and can become very attached to their initial ideas and plans, making it difficult to discard them. Recognizing an error is not always easy and therefore must be approached from a logic of experimentation (which is not the same as conducting experiments), where humility and learning are required.

Finally, but no less importantly, comes the settlement and adjustmentstage, which aims to sustain all implemented changes and mark the definitive beginning of the "new organizational form." Often, this means making small adjustments and focusing on teams, areas, and projects that may be lagging behind the rest of the organization and not performing as expected. This approach is quite adaptive and should consider many of the perspectives mentioned in previous stages.

In this stage, it is especially important to make efforts to generate identification with the current company, increase the sense of belonging, and give coherence to all processes, business, and the organization’s purpose. Ultimately, a merger is a process in which two (or sometimes more) organizations or companies, each with their own identity, history, purpose, strategy, culture, and people, become a single organization that has leveraged business synergies and formed an entity that transcends the original ones.

  1. Hollmann, de Moura Carpes, and Beuron. The DaimlerChrysler merger – a cultural mismatch?. 2010, January 2011Revista de Administração da UFSM 3
  2. Deloitte. 2024 M&A Trends Survey Mind the gap.