I believe that the shockingly low success rate of M&A reflects the fact that they are approached from a transaction mindset, not a relationship mindset.
It is easy to see why this happens – the instigators (ambitious managers, investment bankers, law firms, hedge funds etc.) are compensated on the transaction and have limited exposure the post-merger performance of the business.
This results in the strategic planning and due diligence process giving undue weight to certain considerations (the operating and cost efficiencies that determine the short-term financial attractiveness of the transaction) and insufficient weight to others (the relational and revenue synergies that will determine the longer-term success of the deal).
Mergers are not transactions, they are business combinations whose value depends critically on the health of customer and employee relationships. Research by the consulting firm A T Kearney featured in the May 2008 edition of HBR (“To Get Value from a Merger, Grow Sales” by Rothenbuescher and Schrottke) indicates that the reason why most merger transactions destroy value is NOT because they do not achieve their cost savings – but because they fail to maintain their revenue growth as a result of defections by customers of the acquired company. Cost efficiencies allow profit margins to go up but, once revenues falter, the aggregate level of profit goes down.
Merger due diligence needs to look beyond the financials in order to establish whether the merger will generate enough value for all of the major constituencies (management, employees, and customers – of both companies) to gain their support. Unless the merger is value creating for this broader set of stakeholders, then the post-merger integration process is likely to be ugly.