When 1 + 1 = 3 — Rare Success Stories

In Part 1, we explored why most mergers and acquisitions fail — often ending in frustration, demotivation, and wasted potential. But not all stories end this way. In some rare cases, mergers create something greater than the sum of their parts. In this second part of our series, we look at what makes these successes possible, and why culture often plays the decisive role.

Sources of Synergy

In even fewer cases the result of the acquisition comes close to 1 + 1 = 3. Statistics show that this is the case in just 5% of projects. Even so, this goal is surely the initial consideration behind every acquisition.

How do we achieve it? Again, we can pick up on two basic conditions. The point at issue here is choosing a suitable company to be the goal of the acquisition. If the end result is not just to be a sum of quantities, but also the production of new quality, the integration of the companies must be based on a very creative business strategy. Only in this way can an unexpected competitive edge arise out of the acquisition. A simple rise in the volume of sales, production or development capacities will not lead to this result. It is necessary to find a connection that will form a unique, hard to imitate combination.

Besides a creative business strategy, the human factor also plays a key role in these mergers and acquisitions. Statistics show that almost 80% of failures can be put down to the human factor. Mainly incompatible differences in corporate cultures. However, during the initial Due Diligence only slight – or even no – emphasis is placed on this aspect.

The Role of Culture

The very few highly successful acquisitions were characterized in the sphere of corporate cultures by connections between the positive or negative result of the acquisition and the size of the difference in corporate cultures. There is no direct identification of what can be deemed the optimum difference in corporate cultures. However, the focus should be placed on the following main areas:

This list is hardly comprehensive, as it only gives the most frequent conflict areas when two corporate cultures run up against each other. When deciding the scope of differences that could be considered most suitable, it is important to bear in mind two parameters. The first is the size of the differences and the second is the willingness of partners to discuss them openly and exploit them to produce new quality. The equation 1 + 1 = 3 can only emerge if the scope and number of differences can be resolved and provided both entities consider these differences to be an advantage and part of their common wealth. A new company will only be as successful as the degree to which it is willing to make conscious use of these differences. This applies especially for an investor or the larger of two partners. Their primary concern should not just be the new market, a reduction in operating costs, or an expansion in the product line, but also the exploitation of as much of the intellectual and cultural capital of the other firm as possible.

The Strong Role of the Lesser Partner

The last two cases of combining two businesses, i.e. retaining absolute independence or the dominance of the lesser partner, occur fairly infrequently, and together account for about 10% of all acquisitions.

In the first of these two cases, we are looking at a financial investment where the anticipated return is greater than in the case of other investment opportunities. Therefore, the human factor is not so significant here. Even rarer is the situation where the smaller partner plays the dominant role in the new company. These cases are almost exclusively the domain of IT and New Economy businesses. In this situation the owners of a traditional or successful company are interested in a quick change, and use the acquisition of a smaller company that precisely represents the target method of business and corporate culture as a working example.