Business and political figures have been reeling at the failure of infrastructure giant Carillion. Market analysts have said that, given the vast web of suppliers and clients that revolved around the firm, its collapse is likely to spark a chain reaction of corporate strife and job losses throughout the UK.

Many reasons have been put forward for Carillion’s predicament – but one of the most compelling is that it simply acquired too many other companies for its own good.

In a Telegraph column, David Buchler – chair of restructuring and turnaround specialists Buchler Phillips – wrote: “Over more than a decade, Carillion had been a consolidator in the construction industry. It acquired Alfred McAlpine, Mowlem and part of John Laing. In 2014 it failed to win Balfour Beatty for £2 billion. Now Balfour faces estimated costs of £45 million from its suitor’s collapse.”

Buchler noted: “None of these deals insulated Carillion from the flawed workings of its sector. They added diversity which only made the enlarged group even harder to manage, while possibly encouraging an unrealistic view of growing the top line. None of it helped margin growth, cash flow or risk management [in the] longer term.”

Other UK companies that have collapsed under the weight of their own purchases include music-industry brand Sanctuary, which was once the world’s largest independent record label. As well as adding the Trojan, Rough Trade and Urban Records labels to its slate – plus artists’ management firm Erving Wonder – Sanctuary launched TV-production house Cloud 9 Screen Entertainment as a joint venture with media partners.

That cargo of subsidiaries eventually proved top-heavy: Sanctuary suffered management woes and, in 2007, was itself forced to sell up to Universal.

Are multiple acquisitions always likely to undermine a firm’s management and leadership? And if so, how can an ambitious industry consolidator ensure that it keeps purchases and governance in balance?

The Institute of Leadership & Management's head of research, policy and standards Kate Cooper says: “Evaluating whether or not a merger or acquisition has been successful is, all by itself, a difficult process. Success will always be determined by the stakeholders’ perceptions. So, what may be viewed as a success by the shareholding community – eg, increased value of shares – may be less of a success for adversely affected staff, and so on.”

Cooper explains: “Thanks to Harvard research of 2011, it is still generally accepted that the failure rate of M&A procedures is anywhere between 70% and 90%. In my opinion, insufficient attention is given to two areas: firstly, does the proposed M&A make strategic sense? What is the underlying reason behind the merger – is it to increase market share, or to diversify, or to achieve economies of scale? And secondly, once you’ve greenlit the M&A, how are you going to nurture the relationship between the two parties?

“In a way, it’s like bringing together two families of stepchildren. They will have their own cultures, traditions and ways of doing things – and their own heightened emotions as to how they feel about the marriage. So unless you’re open and honest about the realities that a) this is going to be difficult, and b) the parties must share a commitment to getting through it together, then it can only fail. You have to create a new culture to underpin the process. Otherwise you’ll find that you have two, parallel, competitive cultures instead.”

Cooper notes: “If we look at the governance issue – or, more specifically, the people who should be channelling that governance – even if there are sound, strategic reasons for going ahead with an M&A, there are bound to be turf wars. You can’t have two chief execs, or two finance directors in the same, merged firm. There will be winners and losers. So, how are you going to mitigate against that and minimise any ill feeling? There isn’t a quick fix. But the parties who really understand the stakes are those who are best equipped to succeed.”

She adds: “In the context of a large, umbrella firm that makes several acquisitions within its own market, the stakes are even higher – so the senior figures’ facility for divining strategic purpose, managing relationships and developing shared cultures must be even sharper than in a firm that’s planning to make just one or two acquisitions.”

For further thoughts on leading change, check out these learning resources from the Institute

Image of Carillion logo courtesy of chrisdorney, via Shutterstock