Why Great Partnerships Sometimes Make Terrible Mergers

A successful partnership can be one of the most dangerous mergers to pursue.

That sounds counterintuitive.

Two companies have worked together successfully for years. Their executives trust one another. Their products or services complement each other. Customers see value in the relationship. The financial case for combining the companies may look compelling.

So why not merge?

Because a partnership and a merger ask two organizations to do very different things.

In a partnership, each organization can retain its own Culture, including its leadership style, operating practices, decision-making processes, communication preferences, and financial disciplines. The organizations don't need to become alike. They need to understand their differences well and work successfully across them.

A merger changes the requirement.

Now those differences have to coexist inside a much more integrated organizational structure. Each organization must give up some aspects of a Culture that has served it well, often for years. At the same time, each must embrace aspects of the other organization's Culture that feel foreign—or simply ‘not how we do things.’

The decision-making difference that was manageable when the companies were partners can become daily organizational friction.

The communication style that was simply ‘how they do things over there’ becomes ‘why can't these people communicate?’

Different approaches to budgets, spending, investment, and financial accountability that could operate differently within each partner now have to function within a single organization.

The partnership didn't necessarily hide these differences.

The partnership simply didn't require the organizations to resolve them.

A successful partnership proves that two organizations can create value together. It does not prove that they can operate successfully as one organization.

That distinction should change the way executives evaluate a merger with an existing partner.

Before asking whether combining the companies will create financial value, executives should ask a more fundamental question: What will have to change when these two organizations move from working across a relationship to operating inside one organization?

Start with the cultural differences you already know exist. How are decisions made? How does communication move? How does each organization handle financial resources? Where do people have authority? How quickly is action expected? Which practices are deeply embedded in the way each organization operates?

Then ask which of those differences were easy to accommodate because the companies remained separate. A partnership can create room for two different decision processes, two different communication paths, and two different approaches to spending. A merger dramatically reduces that room.

The next question is harder: Which parts of each Culture will have to change?

Executives should resist the temptation to answer that question by simply declaring that one company's practices are better. Different does not necessarily mean wrong. A slower decision process may provide discipline. A faster one may provide agility. One organization may preserve cash aggressively while another invests earlier when it sees strategic value. Both approaches can be rational inside the Culture that produced them.

The issue is whether those differences can become known, understood, respected, and workable inside the structure being created.

That evaluation should happen before the merger is announced, not after integration begins. By then, employees are no longer discussing an interesting cultural difference between two partners. They are living inside the consequences of it every day.

This does not mean companies with different Cultures should never merge. It means a successful partnership should not be treated as proof that a merger will succeed. In some cases, the very reason the partnership worked so well was that each organization could remain itself while contributing unique value to the relationship.

Change the structure, and you change what the organizations must be capable of doing together.

That is why executives considering a merger with a successful partner should perform cultural due diligence with the same seriousness they apply to financial, legal, and operational due diligence. The question is not simply whether the organizations like each other or have created value together. The question is whether they can function successfully when the boundaries that made the partnership workable begin to disappear.

Great partners can create extraordinary value together.

They do not always make a great merged company.

Sometimes the smartest way to preserve the value of a great partnership is to leave it as a partnership.