Essay About M&A And High Cost Of Integration

Why Do Merques & Aquisitions Fail?
Why do Merques & Aquisitions fail?
Virtually every private business must deal with the matter of ownership transition at some point. Many statistics and researches have shown that there is a significant number of unsuccessful (including abandoned) cross-border merger and acquisition (M&A) transactions in recent years (Reddy, K.S., Xie, E. & Huang, Y., 2016). They also have shown that about two-thirds of buyers fall behind their corporate peers in returns to shareholders. In many cases, their shares get devaluated, and it takes years for investors in the buying company to get back to the price where they have started. One of the most epic M&A fails provides the cross-border merge of Daimler and Chrysler. The two combined in 1998 with the vision of creating a transatlantic car-making powerhouse (Reddy, K.S., Xie, E. & Huang, Y., 2016). The result of the deal was the ultimate sale of Chrysler and a $30 billion write-down for Daimler. Which causes let to this M&A fail? The intention of M&A is the expected growth from acquiring new products, markets, and customers and an increase in profitability based on the strategic potential of the deal (using synergy effects). M&A fails have several reasons, since there are always different parties and critical issues involved. Typical reasons for failed M&A are a lack of involvement from the owners, over valuated prices for the assets, a lack of capacity of the integration process, cultural issues (when cross-border), high cost of integration combined with high costs of recovery, external factors and changes of the business environment. Buyers simply overpay to get deals done, says Mark Sirower, head of North American M&A at Boston Consulting Group. Cases of overpaying for an acquisition (with high advisory fee) are also rampant in executing M&A deals, leading to financial losses and hence failures. The negligence of the integration process is also a common reason for failure. Not identifying the key employees, projects and products as well as sensitive matters and processes can lead to dramatic problems. Integration does not only include the identification of key aspects of