Editors Note: M Squared Consulting is structured around industry focused practice areas. Today’s post is from Sam Doying who is based in the Silicon Valley and leads our Technology practice area.

Conventional wisdom holds that mergers are good; good for the economy, good for companies, good for shareholders, good for employees, and good for customers. For years Wall Street seemed to say, “The Bigger, the Better!”

And in theory, a merger between two synergetic tech companies is a good thing. Product and service synergy and compatibility give customers a more user-friendly offering and a streamlined sales process. Organizational and system integration increase efficiency, while a wider employee pool offers more talent and innovation. In theory, a merger is a beautiful marriage of two companies each designed to ‘complete’ the other. Everyone involved will reap the benefits.

Oracle and Sun Microsystems

Currently in the works is Oracle’s acquisition of Sun Microsystems. Oracle has a seemingly brilliant case for post-acquisition synergy. They have the capacity to both integrate and align Sun’s and their own preexisting product lines, increase brand exposure, and take advantage of both a larger customer base and a broader pool of employee talent.

Oracle promises its customers that it will be able to deliver serious customer benefits as costs go down while product performance, reliability and security go up. The key is Oracle’s new ownership of two significant Sun software assets, Java and Solaris. Oracle Fusion Middleware is built on top of Sun’s Java language and software, making continued innovation and investment in Java technology a virtual no-brainer. The Sun Solaris operating system is the leading platform for the Oracle database, and by acquiring it Oracle will be able to optimize the Oracle database for some of the unique features of Solaris.

Sounds good for customers but what about employees and shareholders? Sadly, the objectives of these two constituencies are usually at odds when it comes to mergers.

The Talent Impact

Some experts estimate that Oracle will layoff 10,000 to 15,000 employees. Andy Greenberg at Forbes.com writes that Sun’s hardware divisions could also see major cuts, as analyst Patrick Walravens of JMP Securities wrote in a recent note to investors. “To make the deal accretive out of the box, we expect Oracle to very rapidly right size Sun’s hardware business, which is likely to have a fairly dramatic impact on Sun’s roughly 30,000 employees.”

Of course, layoffs are necessary to help produce the ROI that Wall Street is waiting for, and layoffs are unavoidable in the process of creating and guarding efficiency. Management and corporate support organizations, such as finance, HR, marketing, legal, etc. are commonly targeted to eliminate redundancy, although no department or organization is exempt.

Unfortunately, this is the area where the best laid merger plans often go awry. When dramatic employee reductions occur without proper insight and planning, the promised financial returns will not materialize. Simply put, if there are fewer employees, but the required work hasn’t changed to reflect it, quality will plummet and/or costs will rise as both fulltime and contingent workers are brought back to help get the job done.

Employee cut-backs may be necessary, but the integration and reengineering of processes and positions are requisite first steps to creating a successful merger. If jobs are changed and energies shifted to better handle the workload, the reduction in labor will optimize efficiency permanently and make use of that broad employee talent pool that was so recently acquired. If this can be done the long term rewards are endless.

So why don’t all synergetic mergers and acquisitions succeed, in light of this knowledge? Because I’m a genius and the first human being to effectively outline the keys to post-merger integration success? No. Because executing the integration process is tough. Most companies don’t view mergers and acquisitions as an annual expense. There is no reason, then, to train or retain a highly specialized team to handle post-merger integration. It wouldn’t be cost effective.

Enter M Squared Consulting

Where most people experience only one or two major mergers in their careers, we have consultants with multiple integrations under their belts. Supplementing the merging companies’ existing staffs with M Squared teams on a temporary basis, can help ensure that not only is the Return on Investment realized quickly (which makes Wall Street happy!), but also that the process runs smoothly and in a way that optimizes efficiency and productivity, ensuring long-term success.

Cutting costs is important to every business, especially in our current economic climate. In a post-merger situation, the most important move you can make is to invest in integration. Bringing in an experienced team of M Squared consultants can fast-track your company into the black, and help it stay there.

Contributor: Jillian Doying

It is a fairly common management insight that most mergers and acquisitions (M&A) are ultimately judged to be failures. Some of the biggest flameouts have been widely covered by the business press (AOL/Time Warner, HP/Compaq, Daimler Benz/Chrysler to name a few).

But given this realization, why do so many companies still embark down this risky road? Is any M&A worth the risk?

Most M&A discussions begin with legitimate business objectives and the genuine belief that the new “whole” will be greater than the “sum of the parts” and result in a market advantage for the new entity.

Sometimes companies opportunistically want to buy market share, or defensively take out a competitor, or buy IP/technology. Other times it’s done to create greater operating efficiencies through more volume or a larger footprint. Occasionally M&A is an outright attempt to buy the human capital that a company needs but can’t hire on the open market.

In other words, companies do M&A for many strategic reasons. In theory, shareholder value should always increase as a result. For maximizing shareholder value is the primary purpose of management. If not, then the merger is deemed a failure.

Why do they fail?

Mergers and acquisitions are inherently risky. There are many causes of failure, here are a few of the most common reasons:

• Flawed corporate strategy for either or both companies
• One company hides the truth; the other buys a sales pitch
• Inadequate integration strategy
• No cultural fit between the two companies and their employees
• Talent “leakage” - the loss of key employees (typically occurs right after their retention agreements expire)
• Acquiring company’s management team is inexperienced at M&A
• Flawed assumptions about the synergy to be gained or cost savings to be realized
• Ineffective corporate governance
• Failed integration of people, products, processes between the two entities
• Failed integration of back-office technology
• Two desperate failing companies merge to form one big desperate failing company
• The CEO of one or both companies paints a compelling “vision” and then proceeds to sell their board, shareholders, employees, and public a bill of goods

Improving the odds

Most mergers or acquisitions fail to realize their potential. So how can companies improve the odds of M&A success?

I think it all starts long before an opportunity is even on the table. The most successful companies at M&A are those who have a demonstrated track record of success in growing their own business. That is the first filter before embarking on M&A as a growth strategy.

Next, companies need to evaluate whether they’ve exhausted their organic growth opportunities, or whether it is more cost/time effective to go down the M&A path.

With those provisions satisfied, successful M&A requires a dedicated effort to discover opportunities and evaluate them both thoroughly and efficiently during the due diligence phase. Companies often engage investment bankers or other specialists for sourcing new M&A opportunities, and typically handle the due diligence in-house or with outside advisors.

Few companies have the executive and managerial resources to manage their on-going business while also undertaking M&A activity. As a result, M Squared Consulting is often called by clients to assist them in various phases of their M&A deals. The specific engagements take many forms, but generally the client is looking for a consultant:

• With prior M&A experience
• Who has specific company, industry, and/or functional expertise
• To help achieve a short timeline
• To avoid management distraction
• Who will provide an honest and unbiased assessment from a neutral 3rd party
• To help integrate the two entities and optimize the resulting operation

Smart executive teams (and the Boards they ultimately must answer to) can greatly reduce the risks involved with M&A by following a disciplined process and utilizing the skills and expertise of objective business consultants or other disinterested third parties throughout the process.