Here is a brief excerpt from an article written by Oliver Engert and Emily O’Loughlin for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

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The biggest mistake that executives make, when going through a merger or acquisition, is looking only at the surface of the acquired company’s mission statement and assuming it jells well with theirs and, therefore, cultures are fairly aligned.

Too often we hear from executives, “We are really similar to this company; it’s not really an issue,” or, “We’ve got this,” because the company plans to leverage a previous acquisition’s playbook. A disregard of the culture and failure to tailor the integration approach are red flags.

Companies combine to gain competitive advantage. But academics have shown that at least half to two-thirds of mergers and acquisitions fail. Our research finds it’s mostly because organizations too often overlook or ignore organizational culture and human capital issues and pay scant attention to integrating these softer issues into the “hard” integration process.

In fact, according to executives responding to the Merger Integration Conference survey (2010-2017), over 50 percent of companies that don’t effectively manage culture when going through a merger or acquisition report that they do not achieve their synergy targets.

Given the tremendous value of global M&A deals today ($4.74 trillion U.S. dollars in 2017, reports Statistica), it’s essential to understand what works and what doesn’t in melding two often disparate organizations.
Why it matters

Most companies require inorganic as well as organic growth to achieve superior results. Our research shows that roughly six of 10 successful companies include M&A in their growth strategies. Those companies increased their revenue at or above their industry segment’s growth rate and enjoyed twice the success of lagging competitors.

How winners approach the deal

To realize M&A’s full potential, high-performing companies strive to capture significant synergies of 30-100+ percent more than anticipated in the business case or due-diligence model. They realize that value creation requires enhancing revenue and capital productivity, not just achieving traditional cost synergies via M&A.

High performers approach large deals with caution and recognize they are risky, usually require transformation to succeed, and typically take 3-5 years to deliver capital and revenue synergies. The programmatic approach can pay off handsomely in value creation, producing greater excess total return to shareholders.

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Here is a direct link to the complete article.