Reasons Why Mergers & Acquisitions Fail And Succeed
- This topic has 14 replies, 15 voices, and was last updated 3 years, 1 month ago by
.
-
Posts
-
According to research from a Harvard Business Review report, the failure rate for mergers and acquisitions is between 70% and 90%. The reasons for such a high rate of failure include:
– Inadequate Due Diligence
– False Sense of Security
– Lack of Low-Level Management Involvement
– Failure to Recognize Culture Synergies/Differences
– Don’t Stress the Press
– Understand the Value AddedAny other ideas?
I would add unclear strategy – a company that gets in the habit of acquisition for acquisition’s sake may wind up with a target company that doesn’t strategically make sense, simply because they are on a roll, or are swayed by the target’s reputation, personality, or ego.
Hi Yazeed,
Thanks for the prompt.
I’d be interested to know what their definition of a “merger failure” is. Is it inadequate capture of synergies identified in the board plan…or lack of fit within the new company? Both Ahmed and Millie present solid points above… I would also add that in some cases management will move forward with a deal to avoid time and investment to develop a particular technology or offering internally. The simple solution is always to “buy” instead of “build”. In certain cases, we’ve seen that companies will pay a steep price (overpay) to acquire a technology for the sake of speed and simplicity (or as a defense mechanism vs. competitors).
Do you have a link to the HBR article?
Craig
There are many factors like
lack of strategy
lack of clear objective
Cultural differences
lack of realization of synergies
Financial
Lack of propoer due diligenceLack of strategic planning. (including integration planning)
Overestimating the synergies.
Inaccurate valuation.
Culture clash.Post Merger Integration
Overambitious M&A
Incorrect strategy
Failure to recognize the time of the deal – Is this the right time?
Conglomerate M&ASometimes the M&A goals do not align with the core business objective. Maybe the management wants a bigger size company and not necessarily for a better return to shareholders.
I would add the focus on short term gain over long term value creation leads to decisions that destroy value. Add to it how the reward and incentive plan was developed for the leadership and transaction team which is part of the first point.
The ability of the buyer and target companies to integrate in structure, leadership and culture has a huge influence on the ability of the new company to realize merger synergies and strategic benefits. Also lack of effective communication lead to well plants the seeds of later failure, measured in terms of lost credibility, diminished employee morale, destroyed value and investor lawsuits.
I would add to your points, unclear objective and strategy. entering into an M&A just for the sake of catching the opportunity before others do.
Yes many M&A fail to deliver and as you highlighted above the list of issues behind it is quite long. I will add complementary ones with a different angle:
– cheap money, financial engineering (sometimes banks, BoD, other actors interest), playing poker with someone else money
– conflict of interests
– hubris CEO running crazy for recognition and package (apply to top team members wanting The deal at any cost)
– over aggressive synergies to sell the deal and eyes stuck on the stock market afterwards instead of operations mid / long term efficiency
– no review of past acquisitions or BD projects and lack of transparency/honesty to learn from the mistakes
– lack of power or unwillingness of regulatory bodies to dig on issues (only works in the US due to the whistleblower incentives and protection), lack of power of company internal ‘regulatory bodies’
– fines and sanctions apply to the legal entity…
- You must be logged in to reply to this topic.
