Did you know that the vast majority of mergers and acquisitions not only fail to hit their performance targets, but actually DESTROY shareholder value? Here’s how to identify and avoid the five most dangerous situations in mergers and acquisitions so your company can get the synergy it needs from these transactions:

Condition #1.
Can you make the tough calls? Recent interviews with merger and acquisition (M&A) industry executives reveal that the number one problem is: “Failure to make the tough calls.  You can’t appease everyone.  Businesses that end up with co-directors, co-CEOs, or co-leaders of any kind are businesses heading for trouble.”

It is best to make tough decisions up front, as the actual business combination is being formulated. Then implement them not long after the deal is closed. This is true not only of decisions pertaining to people, but also facilities, equipment, and critical information systems. An air of confidence -not arrogance or insensitivity, but resolute confidence and steadiness of direction – is an important element of M&A leadership. Making tough calls with confidence is one essential element.

Condition #2.
What type of culture does your company exhibit; Entrepreneurial or Administrative? M&A managers recently cited culture clashes as “Significant – to – Severe” more often than any other dangerous condition. I see cultural mismatch challenges arise again and again. In many cases, they are born out of geography. In other cases, they stem from the industry involved.
To understand and deal with cultural issues: 1) Identify the cultural characteristics of both businesses, 2) identify the disparities that exist between the two,  3) prioritize those that represent the greatest threat to progress in assimilation, and 4) take discrete steps to mitigate those risks. Ignoring this problem is deadly. Build discrete integration plans around melding company cultures to stay out of hot water.

Condition #3.
Does your company’s management team have experience with mergers and acquisitions? Another devastating problem resulting in M&A failure is inexperience among the acquiring management team in performing acquisition tasks. These activities include target selection, due diligence, and post-transaction integration. Industry specific and even process or system specific knowledge is a substantial asset. But in the M&A world, the experience of the acquiring team with previous acquisitions and mergers is also critical.

It is often possible to supplement an inexperienced management team with outside professionals. However, finding someone that understands both the acquisition process and the fundamental business processes that are integral to the operations of the target company is often challenging. Don’t be afraid to get professional help when inexperience is a factor. There is too much at risk in M&A situations to use on-the-job training.

Condition #4.
I wish I had a dollar for every occurrence of this one I have witnessed over the last 30 years! Like many other areas of managers’ performance, hubris tends to blind the participants to the objective results of their actions. In a KPMG survey conducted of executives in 118 companies doing 700 cross border deals between 1997 and 1999, 82% of them reported that they considered the deals to be a success. However, 30% of them actually resulted in added value, and 31% lowered value with the balance remaining basically unchanged.

Long-time observers of this phenomenon often assert that managers seek to acquire other companies for their own personal motives and as a result they pay financial premiums for those companies that are not otherwise justifiable. Ego is the villain here. When this occurs, only intervention on the part of the board of directors has a strong chance of averting the problem. Your company’s board needs to be on constant alert for this situation, and step in immediately when they see it developing.

Condition #5.
Does your company’s acquisition strategy align business processes and systems to leverage all business assets? One of the most important elements of integration, and the one that is usually the weakest, is the commonization of business processes and systems across the newly formed enterprise. Integration most often fails because of lack of focus on the commonization of business processes and systems.

Successful M&A leaders understand the three reasons for this malady:
1) Many executives do not understand the importance of achieving commonality in the processes and systems of the combined enterprise.
2) Other company leaders do not know how to go about achieving commonality in their processes and systems.
3) Still other executives are simply unable to follow through on the difficult decisions related to post-acquisition and post-merger consolidation. To avert this problem, choose your M&A leaders carefully. Make sure the entire team (including the leaders of the acquired business unit) understands: You will be moving toward common processes and systems. Identify and deal with rebellion early in order to avoid a long and painful insurgency.

Your M&A activity can be a real earnings generator rather than a dilution nightmare, but only if leaders are honest with themselves and each other. They must work hard and work as a team to avoid the five most dangerous conditions of M&A.