Why Do Mergers & Acquisitions Fail ?
Successful M&A deals are alike, while those that fail are all unsuccessful in their own way. Indeed, even the most prepared in-house acquisition groups experience intermittent M&A failure.
Beneath, we plot 10 of the most widely recognized and cutting-edge reasons why this occurs.
Insufficient due diligence
Misunderstanding the target company
Lack of a strategic plan
Lack of cultural fit
Wrong time in industry cycle
Lack of management involvement
The most common reason for the failure of transactions. Most attractive target companies operate under the assumption that 'everything available to be purchased is at the right value' which adequately translates to ‘when a buyer is willing to overpay, the business is always for sale’.
It’s important for buyers to set a price limit prior to the negotiations to reduce the risk of overpaying.
2. Overestimating synergies
Overestimating synergies goes simultaneously with overpaying in a deal. Overestimating the cooperative energies is inherent in a transaction is often the first step in overpaying.
3. Insufficient due diligence
The importance of due diligence can never be sufficiently emphasized, One of the major problems that arises during the cycle is that the acquirer is relying upon the target company to give information that isn't always complimentary to their management. This creates evident agency problems.
4. Misunderstanding the target company
ndeed, even due diligence doesn't guarantee that you'll completely understand the target company. It gives you the best chance to do as such, however there are a lot of cases where even a long time of due diligence doesn't tell you what makes a company tick.
5. Lack of a strategic plan
A good ‘why’ is an essential component of all successful M&A transactions. That is, without a good motive for a transaction, it’s doomed to failure from the outset.
6. Lack of cultural fit
Perhaps 'inability to acknowledge cultural contrasts' might be a superior title.
Underestimating this element of mergers and acquisitions as merely a ‘soft area' of the transaction has prompted billions of dollars being devastated throughout the long term.
7. Overextending resources
Target companies which are small in size relative to the acquiring company - are usually viewed as the best kind of transactions. One of the main strands of thought behind this is that they don't need as many assets to be acquired or to be integrated.
8. Wrong time in industry cycle
The inability to see long haul shifts is a human trait (we overestimate change temporarily and underestimate it in the long haul) and one that catches out many managers in M&A, ultimately leading to the downfall of many transactions.
9. External factors
External factors (sometimes called ‘exogenous factors’ or just ‘risk’), refers to everything that’s out of the manager’s control. 2020 provides us with readily available examples all around us.
10. Lack of management involvement
At the point when managers deem different tasks in their company to be more important than the effective implementation of M&A, they shouldn't be shocked when their deal is eventually deemed a failure.
The number of transactions that fail each year, even among experienced practitioners, is testament to the trouble of getting everything absolutely directly in M&A. Our past article on due steadiness is a phenomenal place for any manager hoping to maximize their chances of a fruitful transaction and avoiding these pitfalls.