Avoiding Pitfalls: What Causes M&A to Fail?

Key Reasons:

 1.Lack of strategic rationale:

Focus on the target rather than the key strategy is a sure way to a failed M&A. More often than not, companies fight for a target company and end up paying huge premium only to wonder what to do with their win. With so many variables, such as evolving market, intensifying competition, and complex customers, a misfit acquisition is not an option.

2.Lack of rigorous due diligence process:

Due diligence, though it does not guarantee the success of an M&A, is a step that increases the probability of success. Due diligence forms majority of the planning phase and enables the company to select/eliminate a target based on several factors. Lack of strict due diligence might lead to selection of a wrong target and, thus, can lead to failure of the M&A.Ignorance of market dynamics:

3.

 An in-depth study/ analysis of market dynamics is extremely important, especially in cases where a company is trying to venture into a new industry. If the market conditions worsen, the M&A could end up in jeopardy as the synergies/benefits the management expects from it might not be achieved.

4.Lack of communication:

 Communication plays an important role in the entire M&A process. Poor communication could lead to uncertainty and insecurity in the mind of key resources and might result in loss of good talent. The loss of key resources is likely to shatter the company’s plans to enhance its workforce through M&A.

5.Cultural differences:

 Successful integration of the cultures of the entities is a crucial factor for the success of the M&A. The importance of cultural integration can be realised from the fact that cultural differences were a prime reason for the failure of Daimler and Chrysler merger in 1998.