Most mergers don't work
by Margaret Heffernan

Most mergers don't work - so how do you beat the odds?
In 1998, Universal Learning Technologies was just over a year old. Founded by Carol Vallone, it built software to put university course material online. It was a great, timely idea – but Carol wasn’t the first to have it.

“The reaction we got to our product was, "this is great technology but everybody is talking about WebCT," recalls Carol. “Well, we had watched Murray Goldberg. Under a grant, he had developed WebCT and he had gone around the world pretty much giving it away. He had engineers, he had technology – but he didn’t have money, management, marketing or sales. We had everything he didn’t – and he had what we didn’t.” So Carol decided to buy her competitor and put the two companies together.

In making that decision, she tempted fate. Mergers and acquisitions may be the sexiest business stories in the financial pages, but they mostly don’t work. Depending on whose research you credit, fifty to eighty percent of deals fail. The contracts get signed, the bankers get paid. But then the economies of scale, which the combination of companies was supposed to produce, proves elusive. Corporate cultures and computer systems don’t mesh. Business turbulence, challenging in any event, proves too much for the fragile new, combined company. Teams malfunction as margins for error shrink. Deal frenzy makes everyone first over-optimistic and then just exhausted. Customers get short shrift from frightened employees who are too worried about their job security to do their jobs at all. But Carol’s decision did work. Because she was looking deeper and further than the deal.

“We did the acquisition in May 1999 and then realized we couldn’t run parallel products. We had a small, installed base with our technology and WebCT had about 600 customers. The long and the short of it was that WebCT had established a brand – and we had not. That was a big issue for me, because I had founded Universal Learning Technology. So I had to ask: is this going to be a problem for me? I was more tied to it than anyone because it was something I had founded.”

In the end, Carol decided that she had to change the company’s name to WebCT; her own analysis convinced her. But she’d confronted the central truth about mergers: they are all, always, intensely emotional. Not just for women. For everyone. The fact that mergers fuel such passions is of course why they play out as high drama in national newspapers. But it’s also the emotion of these deals that is most often neglected in the analysis of M&A and under-rated by CEOs who have to try and make the deals work.

After accepting that her company name needed to be sacrificed, Carol faced an even tougher question: what to do with two competing products in the marketplace?

“I didn’t feel as tied to that because I am not a developer,” Carol concedes. “For me, it was just a question of where we would have the most advantage in the market. If we were going to continue to use our own product – BRAVO – it would mean we had to convert all the WebCT users. There was a lot of cost implied in that – and we’d be bound to lose some of them. WebCT already had momentum, their brand was established. I couldn’t see, other than for ego purposes, why we would keep our own technology alive. So I thought: Why not go in the other direction? Why not kill off BRAVO?”

However well considered Carol’s decision was, it wasn’t one that she took lightly. She may not be a developer herself, but she had a lot of insight into how her own technology team felt. They’d poured their long nights, weekends, hopes and dreams into BRAVO and it had only just begun to be used.

“A death. There’s no question,” Carol recalls. She’s laughing now, but she wasn’t then. “I joke about it, but when you talk about sensitivity…! There were definitely people who felt bummed about it because their product was being abandoned. This was their baby. It was born, it was launched, they had put their heart and soul into it – and how are you sensitive to that?”

Many CEOS might have been tempted to explain why what had to be had to be and to move on. The emotion of the situation might have unnerved or repulsed them. But not Carol. Instead of denying or attempting to suppress all the fears and feelings implicit in the situation, she faced them head on.

Carol’s a great entrepreneur. But part of what makes her great, and the reason she keeps beating the odds, is that she fully recognizes the central role emotion plays in business. For her, this is neither good nor bad, it simply is. Understanding that emotion is part of her due diligence. She can either manage it – or be managed by it. It’s a gift many of our more visible business leaders would do well to emulate.

© Margaret Heffernan

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