According to Harvard Business Review, mergers have a 70 to 90 percent chance of failing. Just because a company is doing very well doesn’t mean that the acquisition will succeed. An article posted byEntrepreneur.com emphasizes that “popularity doesn’t guarantee long-term success.”
Many organizations fail to address the long-term strategy of an acquisition. According to Forbes, it’s important to not just focus on the initial acquisition but also develop a longer term strategy. Many mergers fail as a result of not “developing other revenue streams fast enough.”
Common Factors behind Failed Acquisitions
Before entering into an acquisition, an organization should consider all of the factors which may cause the deal to fail. A report on mergers and acquisitions by Airmic and Marsh suggests that companies should manage risk “more aggressively.” The most common factors that lead to failed mergers include:
- Overpaying for an acquisition.
- Rough or failed target integration.
- Disputes relating to purchase price.
- Post Deal completion issues.
- Uninsured legacy liabilities.
- Warranty and indemnity claims.
Worst Deal in American Finance
Perhaps the most infamous failed merger was Bank of America and Countrywide in 2008. The failed deal cost Bank of America more than $40 billion. The Wall Street Journal referred to the acquisition as the “worst deal in the history of American finance.”
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