M&A persists despite high failure rate?
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All the literature points to the high failure rate of mergers and acquisitions, the high bar that should be set to do a deal once success looks possible, etc. Given this data is pretty widely known, what thoughts do you have on why M&A deals are still so highly pursued and approved when most fail? Indeed, a single company can continue to fail at mergers and continue to pursue them.
Death and taxes… the only two things guaranteed in life. As a successful M&A is not guaranteed, neither is a failed M&A despite the statistical data. In the M&A arena, there are a lot of big egos. Most never doubt they will succeed and nearly all can’t imagine the deal in front of them will fail. Money is another driver. Even a failed M&A will be lucrative to someone.
And sometimes, the yard stick against which success is measured is perceived differently depending on your stakeholder group. If the transaction thesis is to acquire a competitor to eliminate them as a potential threat, and after the integration, the deal falls apart but the competitor never recovers and goes out of business, was the M&A really a loss? Isn’t the market still short one threatening competitor? From the perspective of the stakeholder group of employees from the competitor, the deal failed. From the perspective of the stakeholder group of the acquiring business ownership/leadership it was successful… messy, perhaps costly, but successful.
To quote a very wise old man, “You’ll find that a lot of the truths we cling to depend on our own point of view.”
Of course, if the prospect of failure was the wall over which no one will climb, then there is a lot of innovation and creativity that would die before it even got started. We would never have gone to the moon if we let the potential for failure stop us. The Astronauts on Apollo 13 would have died if the potential for failure had prevented the team from figuring out how to put a round tube in a square hole (or vice versa… always get that one confused). And Blue Origin, Virgin Rocket, and Space X would never have happened were these companies, teams, and individuals to have caved just because there was a chance of failure… an ENORMOUS chance of failure. Why did the climber climb the mountain? Because it was there.
Think that the top management of a company is always under pressure for growth. If they cannot grow the company organically, they would pursue M&As as an alternative option. I am not unfamiliar with companies doing unnecessary M&As just because of bottomline pressure and the companies were “buying profits”.
It is always risk vs reward. Once successful, the reward is high and that is the only way that explains that M&A is still on the rise and will continue to do so. The behavoir of organozations is not very different from people, driven by peers pressure to make more.
Don’t trust a statistic that you have not rigged yourself…
It all depends on viewpoints, targets the acquiring company has set, etc. My guess is that the statistics should point out how massiv an undertaking M&A is and to not handle it lightly.As I spent most of my career in oil industry within exploration and production sector, my observation is that there were many M&A happened successfully for one primary reason is to provide integrated broad portfolio of technology services with breath of capabilities and expertise across the well lifecycle to better support customers.
The pursuit and approval of mergers and acquisitions (M&A) despite the high failure rate can be attributed to several factors and considerations. While the failure rate of M&A deals is indeed well-documented, it’s important to understand the motivations, uno online, and dynamics that drive companies to pursue such transactions.
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