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Merger And Acquisitions: Why They Sometimes Fa Il

1149 words - 5 pages

According to some statistics nine out of ten mergers and acquisitions fail to meet the expectations set forth at the inception of the transaction (Paton, 2007). These failures may include falling short on objectives, financial gains, and integration of technology and companies cultures or management styles. The following paper will document some reasons for failure and their affects on the company's culture, reputation, and financial standing. Additionally, it will compare forms of corporate restructuring and which forms are most favorable.Why Mergers Often FailArguably, the primary reason companies decide to merge is to achieve a synergy which will result in cash flow that could not be accomplished by either company on its own. With this in mind, it stands to reason that the primary reason for merger failure is a failure to achieve this synergy. In recent years the primary reason for failure has been sited at the inability to mesh cultures and company strategy. Fundamentally this means management put a lot of time and efforts into crunching the numbers of what could be if they joined forces, but they do not spend nearly enough time hashing out how they will integrate what they are really buying, which are the people who make each organization run and make money in what is possibly two completely different organization styles. This is supported by a study of 40 British companies, Cartright and Cooper [1995] reported that all 40 companies conducted a detailed financial and legal audit of the company they intended to acquire, however, none of these 40 companies made any attempt to carry out an audit of the company's human resources and culture to assess the challenges concerning integration of the organization they were acquiring (Warrilow, n.d.).Technology is another common reason for merger failure and a factor that should receive a lot of attention since it is the heart of the organization. Integration of financial information, inventory, human resources and daily systems is s difficult task and requires extensive re-training of staff and management to ensure errors do not occur which will cost money and in some cases can result in fraud. According to Stephen Warrilow, "a survey conducted by A.T. Kearney in 2004 to identify the most critical phase to merger success or merger failures, revealed that whilst the majority of 53% stressed that the actual implementation phase, often referred to as the "post-merger integration" phase bears the greatest risk, yet this post-acquisition phase is the most ignored."With such important parts of the merger process being commonly ignored or taking low priority, it is no wonder that so many of them fail and which eventually leads to dropped service levels resulting in tarnished company images, which leads to lost revenue, and losses to the share holders of the new company. In the most extreme of cases the merged company may fail completely leading to dissolution of assets. An example of such a failure was the...

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