Reasons Why Many M&A Fail

By admin • January 23rd, 2017

The Reasons Why Many Mergers and Acquisitions Fail

It is an open secret that not all mergers succeed. It is true that mergers help cut costs and boost productivity or profitability. It might be a simple and straightforward process for some companies. However, it might be downright complicated for others.

Statistics show that about two-thirds of all big mergers crash and burn. What this means is that they dip in the stock market and also lose confidence in the eyes of the consumer. Moreover, the reasons why some companies opt for mergers are flawed thereby devoid of adequate research and planning. There are many reasons that have caused the failure of mergers and acquisitions. Here are some of the reasons why many M&A fail.

  • Unfavourable Market Conditions

A market condition might favour an acquisition or merger. But as soon as you sign all the dotted lines, the market can swing in a different direction and put you under a cushion. This makes it almost impossible to get back to the drawing board, especially when you are still trying to find your feet. Unless there is a cohesive integration plan to help guide your process, you will struggle to adapt and get out of the rut.

  • Insufficient Workforce

A merger can take its toll on workers who cannot cope with the burden of new duties. These people spread themselves thinly and neglect critical aspects of the business which spells doom in the end. Before a merger is considered and eventually accepted, it is important to have the required people on board. Do not downsize because you want to save costs. Maintain a relevant staff strength so that your merger does not collapse from an insufficient workforce.

  • Corporate Culture Clash

The chances of a business merger succeeding can be further hampered if the corporate cultures of both companies are totally different. When you acquire a company, you do not only seize the opportunity because it is available. There are other things you need to consider as well.

You need to look at market and product compatibility. Furthermore, you also need to consider the work force and the working environment of the previous company. Disgruntled employees have sent many joint companies down under.

  • Haste in Cost Reduction

Companies focus too much attention on cutting costs after a merger. This adversely affects revenues and profits. Business mergers should focus more on building synergies and cohesion first rather than reducing costs immediately. This is another major reason why mergers fail and customers flee.

Apart from the reasons why many M&A fail, it is important to note that not all business acquisitions fail. Mergers are advantageous because they increase size and reach. They make you competitive in the marketplace and keep your competition on their toes. The utmost success of a merger mainly depends on how the 2 companies can be integrated seamlessly for daily operations.

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