“Merger” is the consolidation of two firms that creates a new entity in the eyes of the law. The French have a good word for it: fusion—conveying the emergence of a new structure out of two old ones. An “acquisition” on the other hand, is simply a purchase.The distinction is important to lawyers, accountants, and tax specialists, but less so in terms of its economic impact. Businesspeople use the terms interchangeably. The acronym, “M&A,” stands for it all.
M&A enters and leaves the public mind with waves of activity, such as those depicted in Figure 1.1
. These waves roughly synchronize with equity market conditions and thus carry with them the cachet of excess, hype, and passion that swirl in the booms. Over time, M&A activity radically transforms industries, typically shrinking the number of players, inflating the size of those who remain, and kindling anxieties about the power of corporations in society. Every M&A boom has a bust, typically spangled with a few spectacular collapses of merged firms. These failures significantly shape the public mind, and especially business strategies and public policy. We should study M&A failure not merely as a form of entertainment, but as a foundation for sensible policies and practices in future M&A waves.
Failure pervades business, and most firms fail eventually.Venture capitalists typically reject 90-95 percent of proposals they see. Up to 90 percent 1
of new businesses fail not long after founding. Even mature businesses ...