In early February, Staples announced it is engaged to marry Office Depot through an acquisition, pending approval of the US Government from an antitrust perspective.

Like all happy couples looking forward to their nuptials, Staples and Office Depot publicly declared their love – not in the New York Times Engagement Section but through a press release. In the press release Staples announced that it agreed to acquire all of Office Depot’s outstanding shares at a premium of about 44% over the last Office Depot closing share price. It also proudly announced that both parents (the boards) approved the deal. And, the press release summarized the benefits of the marriage: cost savings all around; better value to customers; and the new organization will be more competitive. Everyone is happy, celebratory and optimistic at this point. Assuming regulatory approval from an antitrust perspective – these two organizations will begin the integration process and hopefully will live happily ever after – realizing all the benefits listed in the press release.

But, mergers and acquisitions, just like marriages, are often not as successful as one is led to believe from the toasts at the reception about what a perfect match the couple is or in the case of corporations – from the press release. In fact, according to J. Keith Dunbar, president of Potentious, a Washington DC based consulting firm who wrote a great article for Harvard Business Review on making mergers and acquisitions work, about “40% to 80% of mergers fail to meet objectives.” (Harvard Business Review article, The Leaders Who Make M&A Work, HBR September 2014)

Fortunately, for Staples and Office Depot, Mr. Dunbar, over five years, studied 94 deals focusing on the leadership characteristics that led to success. This is great information for any business leaders to have since mergers and acquisitions are a big part of most business’ strategy. Business leaders know that getting through the deal and the integration are perilous from both a legal and business perspective. To assure success, they engage in the painful process of due diligence and in detailed financial assessment and projections. However, once a business gets the deal done and integrates the new organization, despite all the hard work on getting through the deal, the stated benefits of the deal often fail to materialize and the happy projections are not realized.

Mr. Dunbar’s study offers some insights on making it work. Mr. Dunbar found that the competencies and capabilities of the leaders of both the acquiring organization and the target are vital to making the deal a success. Mr. Dunbar honed in on seven leadership competencies that leaders in the acquiring organization should have to make the deal a success and on the list, “act with integrity.” It was good to see solid research supporting the fact that acting with integrity is good business. Although I was happy to see that the Mr. Dunbar’s research showed that integrity is a vital leadership characteristic to make a deal succeed, I was not surprised. 

Anyone who has been through a deal knows that through the entire process, from identifying the target organization to integrating the new business into the existing business, leaders have to make hard decisions which are usually based on incomplete or imperfect information. These hard decisions need to make financial sense but should also be based on a desire to do the right thing for the organization and not just to showcase an individual’s business acumen or to further their career. These decisions require an objective, realistic and honest assessment of why a particular decision is being made – that is integrity. This realistic and honest assessment is also required once the deal is finalized because then it only gets more complicated as the leaders in both the acquiring and target organization are disappointed or even angry with the decisions that have been made. So during these times of conflict, a leader needs to speak with clarity and directness in explaining why a particular decision was made. That requires integrity as well. 

So, although I have always thought that the leaders who acted with integrity during the turbulence of a deal made the process much more stable and ended up with a better outcome for the business, I never had the numbers to back up my opinion. Thanks to Mr. Dunbar there is now quantifiable data to establish that among other things, leaders who act with integrity during a deal better position their business for accomplishing the goals of the deal.

Hopefully, Mr. Dunbar’s findings make the leaders of both Staples and Office Depot reflect on the seriousness of the vows they are taking and in doing so promise to be honest and realistic in their decisions and then, maybe they will live happily ever after.

A Haiku in Honor of the Acquisition

Must merge together

Creating a better life

Will our love survive?

 

 

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