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View SourceMergers and acquisitions are a big business for investment banking, some law firms, some consulting firms, and most big accounting firms. The investment banks search for deals and help firms structure transactions and set prices. Consultants do analysis of possible transactions, especially from a competitive strategy point of view. The lawyers handle the contracts. The big accounting firms guide the “integration” of separate hierarchies, systems/policies, and nowadays especially complex IT infrastructures.
Reading business publications gives one the impression that many significant deals around the world happen every day. For the most part, the news is that these deals do well. Smaller M&A activity is harder to keep track of, but it is undoubtedly even more numerous. Occasionally, deals fall apart before the transaction is completed. And occasionally transactions go through but are then universally judged to be failures in two, four, or six years. Yet the common view is that, overall, M&A is done competently enough, and produces good enough results—which is why it is so prevalent. Just look at some of the most well-known big tech companies. They might do more than 100 acquisitions a year. And they are stars.
Researchers who have looked at value creation through M&A usually draw more critical conclusions. A variety of failure percentages have been reported, but virtually all are far more common than “occasionally.” It is not unusual to find researchers arguing that more than half of M&A transactions do not gain the “synergies” that justified the deals in the first place. These non-success percentages range from 50 to 70% (not unlike some figures thrown around for strategy failures or restructuring disappointments). One thoughtful study reported in Harvard Business Review in 2011 put the failure rate even higher, somewhere between 70 and 90%.
In retrospect, sometimes the problem was incredibly myopic deals. The “smartest folks in the room” come out looking not so smart. Or the inability to innovate (i.e. change) in a shifting marketplace virtually forces top teams into trying deals they know are far less than perfect but produce short-term revenue growth that might make financial markets happy.
Yet the most obvious failures we have found seem to be at the integration stage. They come in two forms.
