Why Most Merger & Acquisition Deals Fail


Mergers and acquisitions can be a great boon for any company.

While organic growth has its perks, for a company looking at jump-starting growth and to scale, a merger/acquisition of another company that has complementary interests/products is an alluring prospect.

However, sometimes, a merger/acquisition can be like stirring the hornet’s nest. Navigating a merger and acquisition process can be a tricky endeavor: case-in-point eBay’s acquisition of Skype.

In 2008, the retail giant eBay acquired Skype for $2.6 billion. Many in the business world saw the figure as mind-boggling considering Skype had only $7 million in proceeds. However, eBay justified the deal claiming Skype would improve its business by providing a platform for auctions to be conducted properly and in real-time.

In the long run, the deal proved to be a failure, as eBay users were not keen on the new acquisition branding it as unnecessary. Eventually, eBay had to write down the value of Skype by $900 until Microsoft purchased Skype.

EBay and Skype’s story is an indicator that M&A integration can be challenging. According the Harvard Business Review, between 70-90% of M&A deals fail. Here are four reasons that might account for such failures.

Lack of Due Diligence

There are a number of boxes both the company acquiring and the company being acquired should check. Is the merger worth it? How will the merger affect the reputation and the business model of your company? Are there any liabilities and debts that would be transferred once the deal is completed? Will there be a clash of cultures?

Often, because expectations for quick returns are high, companies gloss over the good, bad, and ugly. To successfully execute an M&A integration, a meticulous and comprehensive examination should be conducted. This can be done by an agency or an investment bank depending on the size of your company. Investment banks also offer many other services and depending on the complexity of the merger maybe think about opting for a bank. WallStreet Prep investment banking guide breaks down each major function of an investment bank.

Winging It

Implementing M&A integration arbitrarily is akin to digging your own grave. Another underlying problem for any M&A deal is the post-merger integration otherwise known as PMI. There should be a detailed, strategic plan that is dutifully followed to ensure success. Nothing should be done without proper analysis and consultation.

An executive plan detailing an implementation strategy that takes into account key interdependencies between various work streams should be implemented. Also, there should be clearly spelled out timelines.

A careful appraisal can help to identify key employees, core projects and products as well as important resources that need to be maintained or improved. Using these identified critical areas, efficient processes for clear integration should be developed, aided by consulting, automation.

Outsourcing or engaging the services of an enterprise well-versed in m&a integration planning is a surefire way of ensuring that your merger happens seamlessly.

Lack of Communication

Communication is the bedrock of all M&A integration. High-level and Low-level employees and all departments from both parties should fully understand the ultimate goal of the integration. Their questions and fears must all be addressed carefully and they must be kept in the loop concerning the implementation strategy.

Employees should also be abreast with what the merger means for them. Will their position/remuneration be affected? Will they be transferred? Will they have the same freedom as before? All these questions must be deftly addressed to ensure harmony.

This would ensure there is no cause for grumbling and disaffection with the merger process resulting in loss of key personnel to competing companies. Without clear communication, there is bound to be disputes and disagreements.

No IT Strategy

Statistics indicate that leaving out IT during M&A integration results in a 20% value loss. You read that right: a 20% loss of value. Seeing how dependent all of a company’s operations are on IT, there must be an incisive IT strategy that answers all the questions concerning IT management and integration.

Wrapping Up

Every merger or acquisition is a minefield. Learning to the nitty-gritty of such mergers plays a critical role. Doling out money to purchase or merge with another company is not enough. All the potential minefields must be carefully navigated through a clear strategy. At the heart of this strategy, there should be communication and an effective IT strategy.