Flawed mergers

Most mergers and acquisitions never fulfill their promises. A series of studies on over seven thousand M&A deals between 1965 and 1997showed that 55 to 77 percent of these transactions were partial or total flops! In many cases, the announced synergies never materialize, considerable energy is expended in vain, and employee morale is severely affected. Some of the more notorious flops in recent years have been the mergers of Ford / Jaguar, AOL / Time Warner, and Vivendi / Universal.

When things go wrong, many executives cite poor implementation as the main reason: "The idea was a good one, but we weren’t able to manage interpersonal conflicts, cultural differences, etc.” Valid as these arguments may be, they must not hide the fact that many mergers should never have been launched in the first place! Undertaken based on superficial analyses and unrealistic assumptions, many mergers were actually doomed from the very start.

To help companies avoid this trap, we have identified three key recommendations from our selection of books on the topic:

– Beware of “love at first sight.” A merger must be realized to satisfy the strategic needs of the company, rather than simply to “seize an opportunity.”

– Beware of quantitative analyses. Are you certain that the benefits expected from the merger will ever materialize?

– Don’t underestimate the risks of the transaction, and don’t make a commitment unless your company is in a position to bear these risks.