Chapter 8: Questions Before the Merger: Intervention Strategies and Behavioral Due Diligence

Corporations are increasingly vying for a competitive advantage, which they hope will translate into a high return on their investment (ROI). Organizational restructuring—a strategy that includes downsizing, outsourcing, merging, acquiring and hiring subcontractors and consultants— is one means towards this end. The chapter focuses on one of these restructuring initiatives—merger and acquisition (M&A) as a way of enhancing organizational performance. However, despite the continued popularity of M&As as a strategic weapon, the staggering failure rates and statistics suggest that our current approaches to M&A are woefully inadequate. Indeed it appears that the financial and legal dimensions of organizational performance—and the main focus of traditional due diligence efforts—are only part of a far more complex equation. Mercer Management Consulting, for example, found that 57% of merged firms “lagged behind their industries in terms of total returns to shareholders” three years following the transactions (“Why too Many Mergers,” 1997, p. 57). Similarly, Phillip Clements, a partner at PricewaterhouseCoopers, asserts that “up to 80 percent of all M&A transactions have destroyed or failed to create value” (as cited in Lajoux & Elson, 2002, p. xi). Clearly, the current approach to M&A strategies is not yielding the answer for increasing an organization’s ROI. It appears the time has come for organizational leaders to consider another strategy.