Question

With all the attention paid to target screening, selection, negotiating, and due diligence, why are irrational acquisitions/mergers made?

Answer 1

The reason behind an irrational acquistions / mergers made is lack of ground level assessment related to the party. Sometimes, People forget to see the behaviroal aspects of the opposite party which creates problem in the near future. Top management fail to understand the cross cultural aspects of the mergers and unable to make suitable strategies to offer the products and services to the end customers. Many times, an organization pay excessively high amount to acquire the other firm. It will have to invest sufficient time, effort and investment to recover this huge amount. It will reduce the competitive position of the company. Some important reasons for irrational acquisitions:

1) Overconfidence to acquire a firm by the top management.

2) Making a huge payment to the other party or firm to acquire.

3) Forget to assess the behvior related forces, leadership attention etc. of the other organization.

4) Fail to assess own strengths and weaknesses in spite of having its huge importance.

5) Fail to see the revenue generating options and cost saving opportunities with the other.

6) Over dependent on documented report than ground reality of the opposite party.

7) No research related to intrinsic and market value of the opposite party in the merger.