How "Good" Deals Go Bad: The Most Common Causes of M&A Failures

You’ve probably heard the statistics . . . and they’re not very pretty. At least 50% of all deals fail to create value.

Common question: What’s the criteria for success?

Answer: There is no absolute set of criteria for judging merger success, however, the most common criteria are:

  • Did the deal create value for shareholders of both companies within three years of the close date?
  • Did the merger achieve the goals stated? 

Deals can fail for a lot of different reasons. Here are some of the most common. (The list is not in order of importance.)

  1. Paying too much. Some companies simply pay too much for the companies they acquire. They may feel they have to overpay to block a competitive bid or to protect their turf. But the truth is, when you start out by paying too much it makes achieving a satisfactory return on investment difficult.
     
  2. Lack of strategic clarity. Likewise, deals can sometimes be more opportunistic than strategic. It’s possible for companies to acquire for the wrong reasons. Sometimes a CEO simply wants to prove to the Board of Directors that he’s capable of doing a deal. Other times companies get caught up in a buying frenzy rather than analyzing realistically how the two companies complement each other strategically.
     
  3. Slow decision making can derail a deal. If the two companies can’t decide who’s in charge, where they’re going, and how they’re going to create value together, both customers and employees can grow nervous and decide to leave.
     
  4. Poor integration planning and execution. We’ve probably all seen situations where the best-laid plans went astray. Integration plans aren’t worth the paper they’re written on if the people who are responsible for executing those plans don’t understand them, agree with them, or want . . .
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