M&As that are bound to fail

One thing that needs to be understood about M&A is that they seldom succeed. As a matter of fact over 70 % of all M&As regardless the scale and the industry fail, and the another 29 % out of the remaining 30% end up getting far less value than they expected, let alone any notable synergy effects. That leaves only 1 % of all M&A deals around the globe actually succeed with reasonable benefits.  Only people who reap the rewards in any M&A, regardless it succeed or not, are the lawyers, accountants, brokers and promoters. M&A is by far the riskiest proposition that any businesses can undertake.

So, it is a proven fact that most M&A fails, and many of them fail miserably.  I have personally witnessed several large scale M&As undertaken by major Japanese corporations such as, Hitachi, NEC and others, failed miserably with huge loss, all of which were bound to fail from the start. But the gullible management believed otherwise.

I have involved in over 100 M&A deals directly and indirectly in the past 25 years, most of which were in U.S.A, Canada and Europe, and experienced at first hand how the deals fell apart and how they succeeded. Regardless the scale and the industry of the deal, the key common elements of failure are;

1. Wrong motive
2. Incompetent management
3. Cultural mismatch
4. PMI failure

Recent study shows that the cultural mismatch is the key failure factor of any M&A. That is true. However, What all those experts on the subject have missed is that the first cause of all the failures is the very motive of the management who chose M&A to achieve their objective, which are, in most cases, the instant improvement of market share and the financial numbers. There are other strategic objectives, off course, like acquiring various knowledge capital such as technologies and know hows, as well as expanding territory, product lines and the entry into the new market.

Whatever the objectives of the M&A may be, most of the leaders have one common misunderstanding or misguided belief about M&A, that is, 1+1 does not amount to 2, never mind becoming more than 2 with synergy effects that so many people believe in. Even the reasonably successful M&As produce 20 - 50 % (1.2 - 1.5) added value to their existing businesses.

Failed M&A looses even the existing value producing negative impacts. One failed M&A can even destroy the entire company. One good example in the recent even is Toshiba. They have driven themselves to be on the verge of chapter 11 due to their failure of merging with Westinghouse.

In the next post, I am going to discuss further on the inner working of M&A and  an alternative to M&A to grow your business.