Billions in Mergers: How Many Succeed?

The proposed Sprint/T-Mobile was one half of a $60 billion day for M&A. Will such deals work? Four steps smart firms follow.

In a year when mega-mergers have become commonplace, the last day of April didn’t disappoint. First, telecommunications firm T-Mobile confirmed it would buy Sprint, a major competitor. Then oil refiner Marathon Petroleum agreed to buy top rival Andeavor. That’s two deals—still pending approvals, but worth a combined $60 billion if they are—that were announced before most people finished breakfast on Monday. 

Worldwide, there were $1.2 trillion in deals in the first quarter of the year—a record for the first three months of a year—and half of those were worth at least $5 billion. But while it’s understandable that these deals have a certain allure for the leaders who craft them, study after study says that 70% to 90% of them never meet their stated objectives, while a surprising number never even get finalized. (This is the third time Sprint and T-Mobile have attempted some sort of merger.) “Beyond the inherent challenges any deal presents, from operations integration to adopting the same back-office functions, leaders face unique risks in making megadeals work,” says Henry Topping, a senior client partner with Korn Ferry’s Media, Entertainment, and Sports practice.

Experts say that the companies, industries, and people involved in the mergers change, but the same problems often wind up being the major obstacles to merger success. Here are four issues leaders have to resolve to give their mega-mergers a chance at success.

Determine who’s boss.

One of the reasons Sprint and T-Mobile didn’t merge before was that the two companies couldn’t agree on who would run the combined business. The firms didn’t make that mistake this time around. But experts say it is imperative the combined company have not just the executive chairman and CEO roles sorted out, but the entire C-suite, as quickly as possible. “Be as quick and thorough as possible to sort out what the ultimate leadership structure looks like,” says Ronald Porter, senior client partner with Korn Ferry’s Global Human Resources Center of Excellence. It isn’t just a matter of selecting the new leaders, either. How the company handles employees who leave or are forced out leaves a lasting impression—for good or for ill—on the employees who remain, Porter says.

Communicate the culture. 

Deals can fall apart on price, and they can fail on culture. A thoughtful cultural statement is a critical part of the initial phases of integration. “Leaders need to be as clear as possible in saying what is going to be different culturally,” says Porter. The pace of change and the size of deals open the door to a lot of ambiguity, which Porter says can lead to cultural clashes. That’s why, he says, “today more than ever, more due diligence is being paid to cultural fit between organizations.”

Be honest and transparent.

For leaders, a deal announcement means getting a lot of questions from their direct reports about their roles. Workers may fear that the merger’s potential cost savings and synergies will result in job cuts. Indeed, the anxiety itself can lead to disengagement and underperformance. The more leaders can communicate and be a reliable and trusted source of information, the more they can put workers at ease. “Even if there is nothing new to say, don’t leave a void,” says Porter. Indeed, it’s better to risk overcommunicating than keeping people in the dark.

Systematically make talent decisions.

Fulfilling the strategic and business rationale of any deal requires having the right people in the right positions. “Leaders need time to examine and evaluate talent on both sides of the house and come up with a design that leverages the best talent to fit the goals of the combined company,” Topping says. But the longer it takes leaders to determine who should do what, the higher the chance people will grow impatient and leave the firm. Establishing leadership, aligning culture, and communicating can help retain talent.