Merger and acquisition has great benefits to offer if done right. However, research shows that about half of acquisition deals fail. Most large establishments have resources to patch things up, but the effect is far greater for a mid-market company.
Here are 5 reasons why merger and acquisition deals fail:
- Inadequate information about the company to be acquired: Sometimes, information provided by the target company is not complete or carefully vetted by the acquiring company. Also, significant risks and liabilities might not be presented by the target company, and there might be an unusual risk of litigation.
- Difference in company cultures: Often times, the acquiring company neglects the culture of the target company, and this may affect the smooth integration of the companies. Just because the two companies are similar does not mean that they possess the same culture. Chances of success can be cut short if the cultures of the acquiring and the target companies are different.
- Insufficient management capacity to take on the integration process: Most merger and acquisition deals fail because proper attention is not given by the management to the integration process. Also, a post-integration plan is most times not put in place prior to closing the deal.
- Flawed intentions: Sometimes, companies engage in merger and acquisition deals to boost their ego, rather than to use it as a business strategy. Lack of clear and concrete intentions can lead to failure of merger and acquisition deals.
- Paying too much for an acquisition deals: If the acquiring company fails to get a good deal structure or deal price, it will be difficult for the acquiring company to get a positive return on investments (ROI) after the acquisition.
Zubair Ghias is an economist. He has a vast experience in investment banking, and his areas of interest include real estate investment, fine art and antiques.