M&A Information Technology Best Practices

Chapter 26

Why Mergers, Acquisitions, and Divestitures Fail, and Considerations to Help Avoid a Similar Fate

Nikhil Menon

A merger, acquisition, or divestiture project is one of the largest, most complex, and most far-reaching projects an organization undertakes. The principal mergers and acquisitions (M&A) challenge for a company is to capture synergies through initiatives such as functional consolidations, personnel reductions, and cross-selling/up-selling while integrating the different aspects of the two merging companies (such as systems, customers, suppliers, and employees) and building a strategic platform for the new organization without negatively impacting any of its stakeholders (such as regulators, customers, employees, shareholders, and vendors).

When companies undergo a merger or an acquisition, there are typical outcomes they expect going into it. These outcomes include reinventing and redefining the competitive landscape, integrating and rationalizing like operations, capturing synergies rapidly, protecting current customer and user base, and executing an issue-free Day 1.

It is an unfortunate fact that many M&A efforts fail to achieve the business results that were used to justify them. A study of these transactions shows that about 60 percent of acquisitions fail to achieve their stated strategic objectives within the planned time frame.¹ Many are dissolved, often at a loss. Targeted and announced synergies are not achieved in surround 70 percent of the M&A transactions. ...