Reasons Why Mergers Fail | M&A Failure Reasons
A merger can be defined as the union of two or more organizations under single ownership through the acquisition by one organization of the assets or liabilities of the other.
Even if mergers and acquisitions can be an excellent way of increasing and protecting marketshare, this strategic approach does not always deliver what is hoped for in terms of increased profitability or economies of scale.
Typically mergers and acquisitions aim for synergy. But merely recognizing potential synergy areas does not guarantee that they will actually be realized by combining two firms.
Typical reasons for merger failure include:
- Viewing M&A only as a financial, strategic activity, ignoring soft issues such as people, resistance to change and company cultures. When left completely unattended, this may lead to acts of sabotage and petty theft, increased stuff turnover rates, and increased absenteeism and sickness rates. But any merger team is likely to face difficulties of merging the two company cultures, departure of key people and demotivation of remaining employees.
- Spending too much energy and time on dealmaking instead of post-merger planning.
- Payment of an overinflated price for acquired company.
- Poor strategic fit.
- Failure to achieve potential economies of scale due to poor management.
- Unpredicted changes in the external environment.
Without proper preparation, in particular post merger integration planning, mergers will not achieve their true potential.