Reasons Why Mergers & Acquisitions Fail and Succeed

When it comes to a merger, some companies check all the boxes. On paper, they fit all criteria and dovetail nicely into future growth plans. But there’s still a need to go through all proper due diligence. Neglecting a thorough due diligence period may prove to be costly.

A KPMG study indicates that 83% of merger deals did not boost shareholder returns. Robert Sher suggests this is because of the mismanagement of risk, price, strategy, cultures, or management capacity. Reduce your risk of failure and accelerate results by managing mergers and acquisitions at both enterprise and personal levels with a 100-day action plan. This allows you to work through behaviors, relationships, attitudes, values and the environment from the outside in.

According to collated research and a recent Harvard Business Review report, the failure rate for mergers and acquisitions (M&A) sits between 70 percent and 90 percent. The reasons for such a high rate of failure include:

• Inadequate Due Diligence—Once a deal gets started, the expectations for a quick execution are high. This is dangerous because it results in oversight during the due diligence process. When you’re supposed to be uncovering the good, bad and ugly of a company, it’s imperative you assign the right person who knows what to look for and allow them the adequate time to complete their investigation.
• False Sense of Security—Mergers and acquisitions are laced with the promise of synergies that strengthen companies. Promises are sure to be made in order to keep a consistent brand name and CEOs will collaborate to deliver results. However, the reality is that after a merger the real power struggle ensues. Those promises are not kept and the prospective synergies and unities collapse and fall by the wayside.
• Lack of Low-Level Management Involvement—Often times the people with the most say in a merger are the ones least involved with a company’s day-to-day operations. When evaluating due diligence, synergies and costs, the people with the most insight are often lower-level managers.

There are several other underlying reasons as to why there is such a high failure rate for mergers and acquisitions, so how does Lakelet Capital see these deals through to completion?

• Recognize Culture Synergies/Differences—Do not overlook the way employees interact with one another on a daily basis. When assessing deals, it’s easy to ignore details and nuanced differences in company cultures. It’s no fault of your own, it’s just something that’s nearly impossible to quantify. These issues often only reveal themselves post-merger and lead to power struggles and low morale making it difficult to succeed in transition.
• Don’t Stress the Press—Companies often relish in the fact they will be receiving public attention during the few months leading up to the acquisition. If this perk is the reason behind your merger, you will most likely fail. Don’t put too much pressure on the publicity. Focus instead on the next steps with your new company.
• Understand the Value Added—When acquiring a company, you need to accurately understand where the new company is adding value. Deciding how to integrate the new company is crucial and misunderstanding the new value has led to disastrous mergers.

Mergers and acquisitions are laborious, time-consuming and easily mismanaged. In order to beat the odds, you must consider numerous angles and steps in the cumbersome process. Trust the team at Lakelet Capital to do just that.