All Mergers Are Not Alike

Most mergers fail. That’s a fact. After the merger, many companies cannot sustain their initial growth momentum. A.T. Kearney finds that the major cause for post-merger financial slowdowns is treating all mergers alike. In a study of 175 mergers, we identified seven types of mergers. Each type has its own challenges and opportunities. Companies that tailor the merger approach to the merger type will increase merger success and the value of the new company.

The Merger Types
Altogether, there are seven merger types (see figure). The first four make up the clear majority, with more than 97 percent of the total, and the following offers a brief discussion of each.

Volume extension. When the main objective of a merger is to increase scale, a key success factor is improving operational value. But no merger can capture long-term value if a company loses focus on its key customers. Customer retention activities will ensure that customers do not perceive a disadvantage in buying from the newly combined company.

Regional extension. Managing cultural differences is crucial in mergers focused on regional expansion, particularly in the case of cross-border mergers and acquisitions. Another success factor is sharing best practices among the various regions. This can be difficult, however, for companies that do not have the capabilities to transfer ideas and practices among cross-country partners.

Product extension. When the merger is based on products, both parties must move quickly to achieve sales synergies. This requires pulling together an optimal product portfolio and identifying and tapping into all crossselling opportunities. The newly merged company can also take advantage of positive spillover effects by strategically combining brands (for example, branding products and services under a common umbrella).

Competency extension. Companies that merge to gain access to new capabilities (experts, skills, patents, technologies) are prone to internal risks. Therefore, anything that helps stabilize the business and ensure continuity is a success factor. This includes focusing on internal communications and offering incentives to retain key people.

Tailoring Your Approach
Companies that tailor their integration approach to the specific merger type can focus on the most critical success factors rather than resorting to one-size-fits-all merger approaches. Allocating resources to the right areas and focusing management attention on urgent activities at the right time will increase the likelihood of a successful integration, profitable growth and, ultimately, increased shareholder value.