Wiley Encyclopedia of Management

Want to Read More?

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nulla facilisi. Sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Excepteur sint occaecat cupidatat non proident, sunt in culpa qui officia deserunt mollit anim id est laborum.

Despite the vast levels of expenditure upon M&A, a general reading of the business press and of academic writings suggests that M&A, are not so tractable, and it is worth pausing to consider why this is so (Tables and). There are many reasons for M&A failure but those often mentioned include overestimating synergy, overpayment, lack of postacquisition planning, slow pace of integration, bad strategy, inadequate post acquisition communication, culture clash, poor quality of business, and inappropriate top management team. Immediately, it is apparent that these explanations are derived from many different academic disciplines and this reveals one of the main reasons for the complexity around M&A – they are interdisciplinary phenomena, touching all aspects of corporate life, and so should be viewed from a multiplicity of angles. To take just a strategic perspective, much attention has been devoted to understanding the drivers for acquisition

Consultancy and business press evidence on acquisition failure

Consultancy Date Method Failure rate (%)

Business

1975

400 postal questionnaires

International

1978

150 postal questionnaires

48–56

Coopers and Lybrand

1992

Qualitative in‐depth interviews with senior executives in the United Kingdom's top 100 companies

Coopers and Lybrand

1996

125 companies. Low revenues, cash flow, profitability

Mercer MC

1995

150 companies. Poor returns to shareholders after three years

McKinsey & Co.

1995

Examined 58 acquisitions. Success was measured as financial return exceeding the cost of capital

58.6

Source: KPMG.

Academic evidence on failure rates

Types of academics Conclusions Author (date)

Financial economists

Target shareholders benefit by about 20%, whereas acquirer shareholders do not, benefiting by about 0–2%

Billet, King, and Mauer (2004); Fee and Thomas (2004); Jensen and Ruback (1983 and 1989); Sudarsanam et al. (1993)

Industrial economists

• Bidders suffer an immediate decline in relative profitability

Hughes (1993); Sirower (1997); Black, Carnes and Jandik (2000)

• Using accounting data

• Subsequent market share showed dramatic decline

Mueller (1985)

• Dramatic decline in return on assets

Dickerson, Gilson and Tsakalotos (1977)

• Insignificant improvement in operating cash flow

Cosh, Guest and Hughes (2006)

• Subsequent market share

• 58.5% of 2021 acquisitions (1950–1986) subsequently divested

Caves (1988)

• Divestment