Why So Many M&A Deals Fail And The Recipe For Success
From the lack of proper pre-acquisition planning to over-optimistic projections on revenue synergies, there are often, in retrospect, clear reasons why the deal was always doomed to failure.
This excellent piece from theMarketMoghul examines the main causes for the failure of M&A deals, for the destruction of shareholder value in these transactions, and what can be done about it.
They provide Sprint’s acquisition of Nextel as a good example of a bad deal and Washington DC-based Danaher Corp’s multiple successful acquistions as an example of how it should be done.
It has become progressively more difficult to generate growth through organic strategies alone. Therefore, more and more companies are turning to mergers and acquisitions (M&As) to drive growth. The Atlantic reports that in 2015, nearly $5trn worth of M&A deals were announced, eclipsing the previous record set in 2007.
A combination of low interest rates, cash-heavy balance sheets, and pressures to increase shareholder value has buoyed these high levels of M&A activity. Despite that growth, multiple studies put the failure rate of M&A deals at a staggering 70 to 90%