Thinking

Why do some agency mergers fail?

Merger and acquisition activity is relatively commonplace in the marcoms sector. Senior management often plan mergers to create larger entities and deliver greater efficiencies. The rationale being that combining two or more companies with complementary skill sets and talented teams will achieve critical mass and better perform in the marketplace. The corporate money men who initiate these mergers and acquisitions attach great value to size and believe that to be the path to greater profits. From a strategic perspective, this makes perfect sense and yet not all of these agency mergers succeed. Why is that? We’ve identified six possible reasons below.

1. The merger becomes a takeover

There are some scenarios where one of the companies to be merged is clearly the dominant partner. Often in this case the larger dominates and the smaller business gets smothered. This was the scenario recreated so realistically in the final season of AMC’s Mad Men when McCann Erickson acquired Sterling, Cooper & Partners. People are every agency’s greatest asset. Lack of real consideration for all staff is a major cause of mergers failing to deliver forecasted growth and or efficiencies.

2. No trust 

Mergers are times of uncertainty for all concerned; a successful merger can be achieved if all parties are in agreement and pulling in the right direction. Unfortunately this is not always the case. One company’s management may not know, like or trust the management of the other company. There is a lot at stake for all concerned and in some circumstances a mutual distrust can scupper any real chances of a smooth transition to the new entity. Strong and effective leadership is needed as well as the ability to create a high performing team from the management team that emerges.

3. No clearly defined vision 

If a merger is to be successful the newly formed management team must define and then clearly articulate the corporate vision for the new company. This must be bigger than a drive for efficiency or scale.  This new vision has the potential to re-engage and re-enthuse staff members but it must be compelling. The management team for the new entity must create the culture that can deliver the vision. 

4. New role definitions not communicated quickly enough

What roles will everyone play in the new entity? This needs to be planned out carefully. Will it be possible to allocate everyone a new role commensurate with their experience and expectations? Probably not. Will there be some staff that will now be surplus to requirements? Probably. There are an awful lot of human variables to contend with during a merger. Take too long to communicate everyone’s new role and responsibilities and you will find that the most talented leave. Senior management will need to know how things will shape up for them and how they will be remunerated, taking into account equity stakes, bonuses and other considerations. The rank and file employees will want to know that they have a future and that there are opportunities for career advancement.

5. Poor leadership 

A merger is a testing time for leaders and they must deploy the correct leadership style. The primary objective of a leader during a merger is to create a new culture consistent with the new company vision and then to rally staff around the new vision and goals. It is essential that a leader is able to communicate effectively with staff and that any required personnel changes are handled sensitively and quickly. Creating a new high performing management team should be the leader’s priority.

6. Benefits don’t emerge

Agency mergers are often instigated because it makes sense for the both parties. On occasion, these benefits don’t emerge. Access to new clients proves difficult due to silos or protectionism, perceived synergies in skill-sets aren’t really there or there’s a clash of cultures. The way to minimise some of these is through doing your homework, understand what due diligence requirements may be needed and what questions you need answering.  Quite often, a strategic or working relationship during the courting period, in the years or months before a merger can open your eyes to the benefits and risks you may walk in to.

by Miles Welch 
Partner at Waypoint Partners

Waypoint Partners are a leading growth advisory firm, working with shareholders and their leadership teams in the creative, marketing and technology sectors to grow and realise value. Are you planning for agency growth in the next 1-3 years? We would be happy to help you achieve your growth targets. Please feel free to give us a call on T +44 (0) 203 282 7598 or send us an email via angela@waypointpartners.co.uk. We look forward to starting the conversation.

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