The Top Reasons Most M&As Fail

The Top Reasons Most M&As Fail

According to a report from Harvard Business Review, the rate at which mergers and acquisitions fail is a high one. The estimate is that somewhere around 70 to 90 percent of these scenarios fail. With that type of enormous failure rate, it’s a wonder anyone in the tech or general business world even want to try their hand at making a deal, but the dismal statistics don’t deter most leaders.

It’s not necessarily surprising M&As have a high rate of failure, particularly when you consider all the moving parts you’re working to integrate. There are so many factors that go into a smooth M&A situation, from human capital to IT systems, and sometimes it just doesn’t go according to plan. This can become particularly true for businesses that have operations across geographic borders, or who are subject to financial compliance regulations.

Having an understanding of some of the most prevalent reasons M&As fail can be key to avoiding a similar situation with your own business or tech startup.

Bad Strategy

When you’re moving through mergers and acquisitions, having a solid strategy in place is essential, whether this involves the payment terms, or how certain transitions will be managed. Having a bad strategy can stem from human error, even on the part of consultants and lawyers who may make missteps when doing due diligence and going through contracts. According to Firmex, artificial intelligence is poised to take a lot of the human error out of mergers and acquisitions, but until that’s fully implemented, there continues to be room for misguided strategy.

Not Relying on Experts

Navigating M&As is not for the inexperienced. It’s complex, and it requires adequate expertise. Unfortunately, in an effort to save time, money or both, businesses will often try to work without outside guidance, and the results can be disastrous. It’s important to bring in qualified, independent perspectives to manage the process.

Clash of the Cultures

Even if a business is able to get all of the technicalities worked out well, that doesn’t necessarily mean the M&A will be successful. Why? It can be as simple (or as complicated) as a clash of cultures. Sometimes human capital and the more subtle components of corporate culture can go under-the-radar for what seem like more pressing issues. Then, it’s too late to fix the cultural issues once they’ve taken hold. When employees are unhappy, they lose their sense of engagement, which in turn reduces productivity and increases turnover. It can be important not just to recognize these issues may exist, but also to avoid trying to handle them with a blanket approach. Handling cultural and human capital issues independently and with a human element is often the best course of action.

Is a merger or acquisition doomed to fail just because so many others have? No, but it does require attention to details and foresight to know what could wrong and handle it before it does. With new technology and new ways of doing things, a lot of the potential obstacles can be more easily alleviated, paving the way for more successful M&As.

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