The process of mergers and acquisitions is an important factor in ensuring the competitiveness of companies in terms of integration into the global market. However, there are some difficulties in conducting them in practice, as a significant proportion of companies fail. Here are the reasons why deals gone bad.
What about M&A tendencies?
Today in global practice there is a situation when companies need mergers and acquisitions (M&A) to ensure business growth and new markets and this is not surprising, because especially in recent years the level of global competition in most areas has increased sharply, forcing companies before integration.
M&A deals are an extremely important element of modernization and one of the ways to compete with the company’s competitors and guarantee a sharp expansion of business by increasing production capacity. Today, international deals are one of the main features of the globalization of economic development
Why do mergers and acquisitions fail?
It is often very difficult to estimate in advance how large changes can be caused by mergers or acquisitions. But the results of many studies measuring the net effect of already produced mergers and acquisitions give very contradictory, often completely opposite, conclusions.
There are many examples of successful implementation of such business projects. At the same time, the statistics of mergers and acquisitions show that only a third of agreements in this area can be considered successful. According to the Mergers & Acquisitions Journal, 61% of all mergers and acquisitions do not pay for themselves. And a study of 300 mergers over the past 10 years, conducted by Price Waterhouse, showed that 57% of companies formed as a result of the deal lag behind other similar representatives in this market and are forced to re-divide into separate corporate units. And most often the reasons are miscalculations of top management of companies.
The reasons for failures and miscalculations are the complexity of managing business processes with a high degree of uncertainty. Experts usually point out three main reasons for the failure of mergers and acquisitions:
- incorrect assessment by the absorbing company of the attractiveness of the market or competitive position of the absorbing (target) company;
- underestimation of the amount of investment required to implement a merger or acquisition agreement;
- mistakes made in the process of implementing the merger agreement.
Tips for successful M&A deal
Global trends in economic development indicate that the development of M&A transactions in the market will only intensify. That is why, it is advisable to identify the following measures, the implementation of which will ensure the successful conduct of M&A operations by maximizing the desired effect and minimizing integration costs to maintain the company’s competitiveness in the market:
- Choosing the right merger and acquisition facility.
- Setting specific goals and objectives, as well as determining the desired expectations from the processes of consolidation of the company.
- Forming balanced relationships between different management cultures.
- Maximum involvement of all management and staff of the enterprise in the integrative process.
- Ensuring customer satisfaction.
- Focus on ensuring transparency and flexibility of changes in the company.
An important aspect of impact is the ability to use analytics and artificial intelligence to more quickly assess investment priorities in global markets, calculate market sectors where growth is expected, accelerate the search for strategic niches or assess the company’s attractiveness. A wide range of digital tools can be used to make agreements more effective, such as goal screening mechanisms, data integration, and data management software, contract management software like virtual data room, project management tools, etc., covering the entire lifecycle of the agreement.