Merger Failure Rates:
The burning question remains-why do so many mergers fail to live up to stockholder expectations? In the short term, many seemingly successful acquisitions look good, butdisappointing productivity levels are often masked by one-time cost savings, asset disposals, or astute tax maneuvers that inflate balance-sheet figures during the first few years. Merger gains arenotoriously difficult to assess. There are problems in selecting appropriate indices to make anyassessment, as well as difficulties in deciding on a suitable measurement period. Typically, thecriteria selected by analysts are:
managerial assessments.Irrespective of the evaluation method selected, the evidence on M&A performance isconsistent in suggesting that a high proportion of M&As are financially unsuccessful. US sources place merger failure rates as high as 80%, with evidence indicating that around half of mergersfail to meet financial expectations. A much-cited McKinsey study presents evidence that mostorganizations would have received a better return on their investment if they had merely bankedtheir money instead of buying another company. Consequently, many commentators haveconcluded that the true beneficiaries from M&A activity are those who sell their shares whendeals are announced, and the marriage brokers—the bankers, lawyers, and accountants—whoarrange, advise, and execute the deals.
"What Went Wrong?"
According to Steve Tobak is managing partner of Invisor Consulting LLC, the kinds of problems companies face with mergers range from poor strategic moves, such as overpayment, tounanticipated events, such as a particular technology becoming obsolete. "You would hope thesecompanies have done their due diligence, although that isn't always the case," he says. Aside fromthose extremes, however, many analysts view clashing corporate cultures as one of the mostsignificant obstacles to post-merger integration. In fact, a cottage industry of sorts has emerged to