Four Mistakes in Mergers

The Merger Verger directs your attention to a very good article in today’s Wall Street Journal entitled “Four Mistakes Companies Make in Mergers – and How to Avoid Them,“ authored by Sydney Finkelstein, a professor at Tuck School of Business at Dartmouth College.

Dr. Finkelstein’s article is structured in a very helpful format, stating each problem clearly (with examples) and then providing a solution. How great is that? Full article available here (subscription required).

There’s enough here to look at in more detail. For example, Problem #1 is interesting: thinking that previous merger experience Loreco Louisiana smshould be the basis for a new deal. Not necessarily so, says the professor. Why? “Because each of us has a tendency to over-generalize from small sample sizes.”

A couple of quick comments, then I’ll let you get to your assigned reading:

Dr. Finkelstein suggests that integration management teams should include both experienced deal folks and fresh thinkers. A good idea. But it will require management to make sure that the new folks don’t just defer to (or get overpowered by) the “old hands.” We’ve all been in meetings where a close-minded veteran overwhelms an insightful rookie. “Well, we did it this way the last time and it worked just fine. Besides, what do you know about doing deals?” Preventing this is management’s responsibility and it’s crucial to making the very positive dynamic of the old and new work together effectively.

He also suggests that companies should capture the learning gained from each acquisition, a crucial step that is all too often dropped in the rush “to get back to work.”

But to prevent this second point from tripping over the first, it is important to record not just what is learned but also the circumstances surrounding it. When learning is enshrined in generalizations (a sample size of one, for example), i.e., without context, it will become gospel without application. And hence a prescription for failure.

Take Aways:

  • Varied experiences and perspectives are a sound foundation for an effective integration team. But make sure your forum enables each voice to be heard.
  • When making after-action revisions to your integration playbook make sure to discuss not just what you did but what the circumstances were that led you to chose that approach… and why.

About the Art:

Road map of Louisiana from the Louisiana Oil Refining Corporation, late 1920s.

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