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Why Do Companies Continue With Mergers And Acquisitions When So Many Fail?

2453 words - 10 pages

Why do Companies Continue with Mergers and Acquisitions when so many Fail?

The phenomenon of mergers and acquisitions (M&A’s) triggers an array
of opinions and viewpoints. Often it is a strategy that is seen as a
perfect way of achieving growth. It is by no means an organic or
natural route to success, but has tended to be a quick and easy way of
increasing an organisations size and power. However although there have
been ‘waves’ of popularity and success since its introduction in the
1960’s it has also suffered criticism due to the number of failures it
has accounted for. Despite the strong suggestion that this strategy
has been the architect for many an organisation's downfall there still
remains a propensity in the current business environment for managers
to adopt it. Throughout this essay I am going to examine some of the
areas that explain M&A’s volatility and attempt to discover why
managers are persevering with the strategy when it is seemingly
flawed.

Over the last few decades it has become increasing apparent that the
effect of mergers and acquisitions is not as beneficial as once
thought. When the growth strategy was pioneered in the middle part of
the nineteen hundreds it was looked upon as a way of creating an
empire across different sectors and countries. Many experienced
managers were sucked into the strategy, only having eyes for the
apparent synergistical and positive affects of M&A’s. Although over
the following years there has been many success stories concerning
M&A’s, when the big picture is examined it displays a more ugly side
of the phenomenon. Hodge (1998) discovered that ‘in the go-go ‘80s,
37% of mergers outperformed the average shareholder return in that
period; in the first half of the ‘90s, that figure rose to 54%’.
Despite the encouraging increase during the early ‘90s there remains a
disturbing reality that ‘barely one-half of the m&a deals of recent
years delivered shareholder value that outperformed even the relevant
industry average, much less provided an adequate return on
investment’. Added to this he also highlighted that ‘only a paltry 25%
of deals valued at 30% or more of the acquirer’s annual revenues could
be counted as success’. These statistics represent the flaws that
exist within the strategy of M&A’s and clash with the positive theory
that ‘analysts and investors expect the merged enterprises to be
greater than the sum of its parts’ (Doitte and Smith 1998). Coopers
and Lybrand (1993) along with many other writers have studied and
expanded on some of the key factors that limit that usefulness of
M&A’s.

Target management attitudes and cultural differences ‘heads the list
of impediments to the successful melding of two organisations’
(Davenport 1998). This is appropriate not only in the case of
cross-border mergers (Daimler Benz-Chrysler) where there many obvious
points of concern such as language and communication, but also within
the collaboration...

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