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Do emotions get in the way of M&A deals?

Friday, 1 Nov 2013 | 9:29 AM ET
Martin Barraud | OJO Images | Getty Images

A "lack of emotional buy-in" and poor integration between companies' cultures are to blame for unsuccessful merger and acquisition deals, according to a new report.

This year has seen a number of giant M&A deals with the likes of Microsoft acquiring Nokia's devices division and Verizon agreeing to pay $130 billion to buy Vodafone Group out of its U.S. wireless business.

In a survey involving 100 telephone interviews with senior executives, 60 percent said integrating people and culture was one of the most common reason for an unsuccessful M&A deal, a Mergermarket and The Storytellers report shows.

Nearly half said that a lack of cultural and personnel integration has a negative impact on share price while 58 percent said it brought in lower than expected synergies, the study found.

"Our attitudes and beliefs dramatically influence our actions and behaviors, so it's no surprise that the human aspect of integration can make a huge impact either positively or negatively on the success of an M&A transaction," Alison Esse, joint managing director at The Storytellers, said in a statement.

(Read more: How should Vodafone spend Verizon's $130 billion?)

Getting employees to emotionally buy-in to the company is seen as key with 93 percent of respondents saying that the time taken for an employee to feel proud of their new organisation has a significant or very significant impact on the ease of integration.

"You have to approach the process with a mindset that will have two halves that add up to more than one, with people who can collaborate, contribute, communicate, compete tasks and are culturally savvy," Bill Payne, vice president of customer relationship management and industries at IBM said in the report.

Companies could also take a large financial hit as a result of failing to manage cultural integration. For an organisation of 1,000 employees, a takeover is likely to cost £1.3 million ($2.1 million) from unwanted employee turnover, with costs soaring to 6.5 million pounds for a 5,000-strong company.

But new firms are seeing the importance of an emotional stake in M&A deals and making provisions to deal with it, according to Giovanni Amodeo, global editor in chief at Mergermarket.

"Integration is becoming an increasingly sensitive topic within the corporate community. Although there is still some reluctance to plan ahead…new generation companies are more open to brining in integration planning experts to assist in those changes."

—By CNBC's Arjun Kharpal: Follow him on Twitter @ArjunKharpal

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