Failure of Mergers and Acquisitions

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Despite the highest degree of strategy and planning and investments of hundreds of crores, the majority of the mergers and acquisitions cannot create a value and fail miserably. In 1987, the professor of Harvard, Michael Porter found that around 50% to 60% of the mergers and acquisitions ended in a failure. In 2004, McKinsey also found that only 23% acquisitions ended in a positive note on investment. There are several explanations for failure of mergers and acquisitions. Let's find out why majority of the mergers and acquisitions fail.

Why Mergers and Acquisitions Fail?

There could be several reasons behind the failure of mergers and acquisitions. Many company look mergers and acquisitions as the solution to their problems. But before going for merger and acquisition, they do not introspect themselves. Before an organization can go for mergers and acquisitions, it needs to consider a lot. Both the parties, viz. buyer and seller need to do proper research and analysis before going for mergers and acquisitions. Following could be the reasons behind the failure of mergers and acquisitions.

Cultural Difference

One of the major reasons behind the failure of mergers and acquisitions is the cultural difference between the organizations. It often becomes very tough to integrate the cultures of two different companies, who often have been the competitors. The mismatch of culture leads to deterring working environment, which in turn ensure the downturn of the organization.

Flawed Intention

Flawed intentions often become the main reason behind the failure of mergers and acquisitions. Companies often go for mergers and acquisitions getting influenced by the booming stock market. Sometimes, organizations also go for mergers just to imitate others. In all these cases, the outcome can be too encouraging.

Often the ego of the executive can become the cause of unsuccessful merger. Top executives often tend to go for mergers under the influence of bankers, lawyers and other advisers who earn hefty fees from the clients.

Mergers can also happen due to generalized fear. The incidents like technological advancement or change in economic scenario can make an organization to go for a change. The organization may end up in going for a merger.

Due to mergers, managers often need to concentrate and invest time to the deal. As a result, they often get diverted from their work and start neglecting their core business. The employees may also get emotionally confused in the new environment after the merger. Hence, the work gets hampered.

How to Prevent the Failure

Several initiatives can be undertaken in order to prevent the failure of mergers and acquisitions. Following are those:
  • Continuous communication is of utmost necessary across all levels – employees, stakeholders, customers, suppliers and government leaders.

  • Managers have to be transparent and should always tell the truth. By this way, they can win the trust of the employees and others and maintain a healthy environment.

  • During the merger process, higher management professionals must be ready to greet a new or modified culture. They need to be very patient in hearing the concerns of other people and employees.

  • Management need to identify the talents in both the organizations who may play major roles in the restructuring of the organization. Management must retain those talents.