Why 70-90% of M&A Deals fail?

Despite over 20 years of development and Mergers & Acquisitions (M&A) becoming a top strategy for inorganic growth, the M&A failure rate remains shockingly high - 70-90% of deals don’t deliver expected value. This failure rate has remained high over the past 7 years, with contributing factors including poor integration planning, cultural clashes, and misaligned synergies.

Companies invest millions - sometimes billions - into acquisitions, hoping to expand market share, enter new markets, accelerate innovation, or unlock cost and operational synergies. Yet, more often than not, most of the deals fail to deliver their expected value, resulting in operational disruptions, talent attrition, cultural clashes, and financial performance decline. Why do so many M&As fail? See the key reasons below.

Pre-Deal Stage:

1. Synergy Overestimation & Overpaying for Acquisitions

   • Companies often overestimate synergies relying on the sellers valuation and assuming the retention of the demonstrated business growth, and overpay for deals, leading to financial losses when projected benefits fail to materialise. 

2. Poor Due Diligence - Over 60% of executives cite inadequate due diligence as a primary reason for M&A failure:

   • While buyers are primary focused on Financial and Operational Due Diligence, failure to uncover operational, technology, cultural, and management risks leads to the business stagnation, decline, and to long-lasting and costly integration efforts.

3. Regulatory Challenges

   • Approximately 14% of large deals are canceled due to antitrust or regulatory issues, particularly in highly regulated sectors.

Post-deal Stage:

5. Lack of Strategy, Unclear Goals and Timelines

   • Lack of a well-defined M&A Integration strategy and unrealistic expectations lead extended integration, revenue and key personnel loss;

   • Underestimated risks of integration lead to underachieving synergies and losing the acquired company’s market and revenue.

6. Poor Integration Planning

   • Inadequate planning for the integration process often result in operational disruptions, inefficiencies, and failure to deliver on synergies.

7. Cultural Clashes

   • Differences in corporate cultures are one of the most cited reasons for failure, leading to employee dissatisfaction, disengagement, and high turnover rates, which negatively impact productivity and morale. 

8. Personnel Resistance to Change and Uncertainty lead to Loss of Key Talents

   • Lack of transparency, poor communication, uncertainty, and discomfort with change lead to stress and resistance, ultimately reducing efficiency and causing the loss of key talents, which further hampers performance.

9. Operational Difficulties in Executing Integration

   • Challenges in integrating systems, processes, and teams disrupt business continuity and negatively impact revenue generation.

10. High Recovery Costs

    • Post-merger integration often incurs unforeseen costs related to system upgrades, layoffs, or operational inefficiencies, exceeding initial projections

11. Loss of Acquired Company’s Clients and Revenue 

    • Poorly designed Client, Brand, and Sales integration often leads to loss of the acquired company’s market and client base 

By addressing these common pitfalls, investing your effort in the comprehensive Due Diligence, designing a Post Merger Integration Strategy, and bringing two companies together to plan and execute the Integration you will secure and maximise value of your investments and merging assets.