Question

A study by professional service firm KPMG indicated that 83% of mergers fail.

However in a recently published report, The State of the Deal: M&A Trends 2019 by Deloitte, indicated that “corporate and private equity executives focused on mergers and acquisitions anticipate further acceleration of deal flow in 2019 – both in the number of transactions and in their size – which would further extend several years of record M&A activity.”   

Why does this dichotomy exist? If so many mergers fail, why are a record number of firms engaging in merger activity?

Answer 1

This dichotomy exists because of the fact that companies are always looking at ways to create value and to grow its market share. Companies are aware of the fact that majority of the mergers fail either due to several reasons like misevaluation or poor integration process or low level of owner involvement or cultural integration issues or even due to negotiation errors. Despite this a record number of firms are engaging in merger activity. Companies look for mergers as an easy way for inorganic growth. Given the tough market dynamics sustaining organic growth is a difficult task for several companies and hence their quest for growth through the inorganic route propels them to look at mergers as an option even though they are aware that majority of mergers fail. Another reason is that in case a merger is successful a company would be able to reap the benefits of diversification and increasing its supply chain pricing power. The benefits are quite high and if the merger is successful then the acquiring company will stand to gain a lot. This is the reason why a record number of firms are engaging in merger activity despite the fact that many mergers are failing.