Abstract:
In this article we have analysed the causes of failure of mergers and acquisitions. One reason is the bullish stock market. Another reason is that the merging companies may belong to diverging corporate cultures.Apparently mergers and acquisitions may seem to be beneficial resulting in the amalgamation of two conglomerates. Mergers and acquisitions have been found to be beneficial leading to cost cuts, increased revenues. However, failure of mergers and acquisitions are not uncommon either. Failure of mergers and acquisitions may harm not only the companies but also tarnish its credibility in the market and ruin the confidence of the shareholders.
Studies reveal that approximately 40% to 80% of mergers and acquisitions prove to be disappointing. The reason being that their value on the stock market deteriorates. The intentions or motivations for effecting mergers and acquisitions need to judged for the process to be a success. It is often felt that as a result of a merger or an acquisition, there will be an increase in the "economies of scale". But it may not always be true.
Note:
It is reckoned that since two companies have merged, the output of the two companies combined will increase the productivity of the merged companies. This is referred to as "economies of scale".Reasons of failure of mergers and acquisitions:
There are several reasons due to which a merger or an acquisition may fail. Some of the prominent causes are summarized below:- If a merger and an acquisition is planned depending on the (bullish) conditions prevailing in the stock market, it may prove to be dicey. Often mergers and acquisition may also take place by mere imitation. If a particular company has taken over or has bought a target company, other companies may want to do the same. This would however prove to be less beneficial or lead to failure of mergers and acquisitions.
- There are times when a merger or an acquisition may be effected for the purpose of "seeking glory" instead of viewing it as a corporate strategy to fulfill the needs of the company or a firm. Irrespective of the organizational goal, these top level executives are more interested in satisfying their "executive ego".
- In addition to the above, failure of mergers and acquisitions may also take place if a merger takes place as a defensive measure to neutralize the adverse effects of globalization and dynamic corporate environ.
- Failure of mergers and acquisitions may result if the two unifying companies indulge in different "corporate cultures".
