Why do M&A deals fail?

The failed M&A deals are most often the result of banal mistakes by the management of a predator company. So, in this article, we will analyze the most common reasons to fail.

The role of M&A deals in the business sector

Mergers and acquisitions (M&A) are an integral part of the market economy, allowing companies to increase capital to use it more efficiently. Several undeniable advantages of these transactions should be noted: they serve as an instrument for external growth, can help improve the company's position in the commodity, credit, and stock markets, increase the company's competitiveness and profitability. On the other hand, M&A transactions can be accompanied by huge risks. That is why the most important factor in the success of such deals is the readiness for possible problems and a quick response to them.

The failures of M&A deals make many scientists and managers look for the reasons for the failures of these transactions, as well as possible ways to overcome them. Most of the failures are due to erroneous financial calculations when choosing a target company for mergers and acquisitions. Another part of the reason lies in the shortcomings of the integration deal, as well as in ignoring the problems that arise with the human resources of the merging companies. Let`s consider the main reasons for the failure of M&As.

The attitude of the company's personnel to this transaction

The effectiveness of mergers largely depends on the attitude of the company's personnel to this transaction. There are two groups of problems associated with the company's personnel:

  • group. The first group is related to the organizational culture that exists in the company. This culture creates group integrity in the minds of employees, but integration with another firm threatens to destroy the community and integrity of the company.
  • personal. The second group of problems is related to the individual perception of the ongoing structural changes by each employee. M&As can lead to the threat of job loss, the impossibility of career growth, increased workload, and others.

4: Unrealistic expectations

Often the company's management underestimates the deal, the complexity of which grows as the transition to a new level of integration. Usually, the stage of searching for potential target firms and the stage of planning and pricing a deal is not very complicated, the stages of concluding a deal and subsequent integration of companies are much more difficult.

The profound changes required to achieve success takes much longer than originally thought. Thus, the changes that occur during integration are more likely to shake the organizational culture of the company than to improve it. Very often, for many years in the future, the organization remains divided into two groups – former employees of companies A and B.

Financial advisors

When concluding mergers and acquisitions to reduce risks, many companies turn to financial advisors. However, one should take into account the fact that financial advisors are interested in such transactions, as they have the opportunity to sell their services. It is important to take into account another factor. The advice given by a financial consultant is not always implemented by the company's management, the final decision is made by the management.

Personal goals of managers

In other words, managers may decide to acquire another firm for their personal gain. Thus, there are some reasons that can increase the risk of default of the absorbing company. That is why management should take very seriously the issue of analyzing and evaluating possible M&A transactions and carefully analyze the risks that may arise as a result of such transactions.

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