Mergers and acquisitions require more than financial synergy

Mergers and acquisitions are notoriously complex, high-risk ventures that often take months or years to finalise.

Beyond the obvious financial intricacies, what many don’t realise is how important non-financial factors—particularly cultural alignment—are to their success. Deals aren’t just about combining balance sheets since they involve uniting people, processes, and philosophies.

A mismatch in company cultures, values, or work ethics can derail even the most promising merge which can lead to employee dissatisfaction, high turnover, and operational inefficiencies.

Due diligence goes far beyond financial audits. It includes a deep dive into organisational behaviours, decision-making styles, and leadership dynamics to evaluate whether the companies can function cohesively post-merger.

For example, a fast-moving tech firm may struggle to integrate with a more traditional, hierarchical corporation, even if the numbers look promising. These differences can manifest in subtle ways, such as clashing communication styles or divergent attitudes towards innovation and risk.

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Moreover, mergers and acquisitions transactions are often accompanied by intense scrutiny from regulators, stakeholders, and the public.

Missteps in integrating workforce policies, handling redundancies, or addressing supply chain overlaps can invite legal challenges or reputational damage. The most successful mergers don’t just achieve financial synergy—they also harmonise human and cultural elements.

The structure of these deals can vary widely, with cash, stock, or a combination used as payment. Their success hinges on meticulous strategic planning and practical integration.

As Chris Roush notes in his 2004 book Show Me The Money, “…many of them make acquisitions under the belief that a larger company can spread its expenses around more efficiently.” Yet, this assumption often oversimplifies the complexities of mergers and acquisitions. Financial synergy is only one piece of the puzzle; the transaction must also account for operational, cultural, and strategic compatibility to truly succeed.

This is also a key departure from the 1980s when mergers and acquisitions were frequently criticised as destroyers of wealth, driven by aggressive takeovers and asset stripping.

Modern M&A strategies demand a more nuanced approach that reconise that value creation often hinges on factors like retaining talent, taking advantage of technology, and integrating supply chains. Today’s deals are about building sustainable growth, not just cutting costs or increasing market share on paper.

Also, today’s deals operate on a much larger scale and with higher stakes. While often justified as a means to expand market reach, the underlying motivations and outcomes can sometimes be, for lack of a better word, “undermined’.

Strategic imperatives typically drive merger and acquisition activity, as companies or startups seek to dominate their market, leverage new technologies, or expand into new geographic territories. Achieving these goals is not easy.

For instance, Rise, a Nigerian investment startup, recently acquired Hisa to strengthen its reach in the East African market. Rather than expanding its services locally—which also entails a number of legal hurdles, Rise chose to acquire a business in Kenya to align with its Africa-wide ambitions.

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Yet, economic downturns can sometimes push merger and acquisition deals as struggling companies become attractive targets. For instance, Afreximbank has offred $40 million to Fidelity Bank for Union Bank UK’s acquisition and recapitalisation.

Other merger and acquisition factors are sometimes unseen but make sense in the long run and should be considered more keenly for future transactions.

First, the transactions should focus more on how marketing can minimise the negative consequences of merger and acquisition activity, such as customer switching or loss of consumer loyalty.

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It is also important to look into both the pre- and post-merger stages; the scarcity of assessments connecting these stages is concerning, especially since linking them could positively impact merger and acquisition performance, generally and within specific industry contexts.

Examining the relationships between critical success factors in the pre and post-merger stages can help companies better understand the overall merger and acquisition performance.

Lastly, there are marketing-related reasons why firms engage in mergers and acquisitions; however, these reasons and the effects the deals have on both the companies involved and their consumer and supplier portfolios are hardly explored.

Kenn Abuya

Senior Reporter, .