Why Merger failed during the first 6 months

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  • This topic has 5 replies, 6 voices, and was last updated 3 months, 3 weeks ago by Dr. Muhammad Iqbal Shaharom.
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  • #35831

    The majority of mergers are like marriages – they don’t work.The failure rate for mergers or M&As, is anywhere between 40 percent to 80 percent.That means that most deals fail to achieve the strategic aims for which they were initiated.Some of the reasons are :
    1. Deal Fever
    Momentum, personal ambition, and public headlines make it difficult to stop a deal once it gets going. Politics and ego make it hard to assess the objective merits of a negotiation once it has started.
    2. Implementation
    Rarely implement them. Lawyers send in their invoices, and the strategies move on.
    3. Lack of insight
    Nobody tell the truths, and few companies examine where or how the deal makes sense.

    #38958
    Yuin Harng Ng
    Participant

    Hi, I’ve also done some personal research into why 83% of M&A are non-accretive.
    Some of the reasons are:
    1. Wrong Deal Structure: Over-financed with debt lead to minimum margin for errors
    2. Wrong Trend: Assumptions was based on existing market conditions and reality turned out to be very different
    3. Overpaying: This would be due to managerial EGO, which could be assessed through personality profiling (and for NPD)
    4. Overestimation of Synergies: Most projections are overoptimistic and unable to realise or cost too much to realise
    5. Lack of Due Diligence: There needs to be confirmation of “stories” and “sales pitches”
    6. Wrong Integration Strategy: Lack of understanding and utilisation of wrong integration strategy
    7. Cultural Misfit: Clash between cultures and lack of proper management capabilities to handle it
    8. Lack of Capacity for Integration: It requires 100 to 200 man years to complete a proper M&A integration, and expecting existing employees to do business as usual along with integration is expecting too much of them
    9. Poor Senior Management Ability: Lack of Communication of the “end-state” vision along with lack of proper integration plan (to execute on).
    10. Lack of communication and inclusiveness with all function heads and company to run the integration together, as a collective.

    I did this research over a few months and hope it’d be of value to you. Cheers

    #38962
    Matthew Brown
    Participant

    I also think it’s important to align on what does success look like? To some functional areas, take technology, if they’d delivered their objectives, it was a success! If HR delivers their scope of work, don’t they think it was successful? Having a shared vision of what success means actually dictates what success ultimately means fo rhte company as a whole. If the technology worksteam was by and large a mess, missed deadlines, but the business hit revenue, product and sales expectations ongoing…that may be viewed as success by the business!

    #38970
    Srrah Algheithy
    Participant

    I think you bring up a very valid point in that lack of implementation or follow through contributes toward failure rates of M&As. As we witnessed in the lessons, a large part of M&A success comes with proper due diligence to identify the level of post-merger integration efforts needed. Furthermore, I believe it is difficult to evaluate the success of an M&A within the first 6 months. It is expected that the M&A will take some time post-merger to integrate or set up the structure of the new entity. Extensive effort is needed to integrate company culture, HR, and IT. These non-core items have large influence on the ability to realize the strategic value anticipated from an M&A deal. These activities naturally take time, a minimum of a year, and therefore the M&A cannot be anticipated to realize growth within the first 6 months. Therefore, an M&A could be considered a success by merely maintaining its pre-M&A value or reporting minimal losses during the early period of post-M&A integration.

    #38977
    Yazeed Albaiz
    Participant

    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 Added

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