Question

Provide FIVE (5) reasons why many mergers and acquisitions were failed. Please explain in more detail.

Answer 1

Overly idealistic valuations and unrealistic expectations are always the culprits of a deal 's demise. Granted, the parties to the prospective agreement want to do whatever they can to make it happen. Sadly, this also means that financial problems are measured and evaluated rather "creatively" to make them as appealing as possible. While it is reasonable that the parties want to present the figures, assuming the best case scenario, when it becomes clear that reality is well below what was projected, it could prove fatal.

This is very normal for seasoned practitioners to oversee most of the key issues during the negotiations. Some leaders may remain active in the process, but others are too busy managing the business, allowing experts to do much of the work. The problem with this is that once these specialists are out of the picture and it is time for the newly created company to step forward, the leadership does not have ample insight into the situations and aspirations that exist.

Combining organizations on paper is also much simpler than combining processes, history, and staff. Things may get especially messy if there is no clear integration strategy in place and/or there is insufficient contact from higher ups to middle management. The complexity of a merger or acquisition also undermines morality, which can easily interrupt productivity and performance. Such kinds of integration barriers must be determined in advance and dealt with in a delicate manner.

Sufficient resources must be made available, both human and financial, for a newly established organization to resolve the complexities of combining the two different entities and cultures. It is likely that there will be a need for new workers, revised policies and procedures, extra real estate space, and much more, which will certainly take a bit of time and resources to be invested in. Hopefully, this is something that is understood and prepared well in advance, but sadly, it's not always the case.

Even the best plans can go awry if the economy undergoes abrupt, dramatic changes that impact stock prices and interest rates. Undoubtedly, a volatile economic environment would interfere with the effectiveness of mergers and acquisitions, irrespective of how well they were supposed to do.