Acquisitions are one of the most powerful tools available to companies for achieving growth and building long-term value.
Unfortunately, while lots of deals get done, few of them succeed. According to the Harvard Business Review, somewhere between 70-90% of all deals fail. Worse still, according to such firms as KPMG, The Boston Consulting Group, and L.E.K., 50-60% actually destroy shareholder value.
One simple but effective way to ensure a successful acquisition is to study why others have failed and do something different.
Here are nine common root causes of failed acquisitions. Every cause cited could have been avoided or mitigated with earlier or more concerted attention to the demands of integration.
Poor strategic logic or fit, strategy not used to determine goals of integration
Examples: eBay / Skype, Arby’s / Wendy’s
Overestimation of potential synergies, underestimation of synergy complexities or timetable to delivery
Examples: AOL/Time Warner, HP/Compaq
Fundamental incompatibilities (including buyer’s lack of self-awareness), ineffective integration, squelching positive attributes of target’s culture in name of uniformity
Examples: Daimler Benz/Chrysler, Alcatel/Lucent
Weak leadership, delays in appointing new leadership team, loss of key talent, insufficient participation in the transaction and integration processes, ego clashes, failure to deliver on pledges
5. Transaction Parameters
Overpaying, inappropriate deal structure, endless negotiations bleeding both companies dry
Example: Quaker Oats / Snapple
75% M&A deals fail to create value
6. Due Diligence
Insufficient investigation (especially little or no strategic and operational due diligence), failure to translate findings into actions.
Examples: Bank of America / Countrywide, HP / Autonomy
Failure to communicate with sufficient transparency, awareness, depth or frequency; failure to take key messages to appropriate stakeholders, failure to address the concerns of each group with targeted yet strategically consistent messaging, making empty promises
failure to take key messages to appropriate stakeholders, failure to address the concerns of each group with targeted yet strategically consistent messaging, making empty promises
Few deals have gone bad for sheer communication failures. However, ineffective communications can lead to talent loss, customer loss and a host of other more direct forms of failure.
8. Key Talent
Failure to identify key personnel, failure to act swift enough to retain them
Examples: Bank of America / Merrill Lynch
Failure to identify fundamental incompatibilities (poor due diligence), underestimating complexities or time required for system integration
Examples: Sprint/Nextel, Facebook/Instagram