Mergers and acquisitions are normally seen as profitable ventures by both the parties involved in the deal. However, a deal may turn into a nightmare for you if due diligence and proper planning are not implemented. There are different sides to every merger and acquisition, and it is well known that mergers often do not work for many companies in the industry.
People who advocate the benefits of mergers and acquisitions will say that mergers reduce costs and boost the revenues of the business, while increasing stock market rating of the newly formed alliance. It sounds easy, but there have been many mergers and acquisitions which have turned into nightmares for both parties.
If you are a fan of statistics, then the numbers will tell you that approximately two thirds of all major mergers fail and end in a catastrophic manner, which have cost the parties billions of dollars in losses. Taking a closer look as to why these mega mergers fail even after all the planning and extensive work put into them, here are some of the factors which may turn your merger and acquisition deal into a nightmare.
Flawed or Negative Intentions
A booming stock market and inflating rates are deemed as the perfect time for merger and acquisition for businesses. This can cause trouble in the long term, since mergers which are done solely to take advantage of the market have a flawed base and will yield negative results in future.
Historically, most mergers are caused by intimidation or imitation. Senior executives at different corporations may start thinking about a merger, if a rival or competitor has just acquired a company. The idea behind this deal is to imitate, following in the footsteps of the opposition or it may be a response to intimidate the opposition. Such deals rarely work, since the merger may not be in the best interest of the company, and will be a drain on resources of the organization in future.
Mergers and acquisitions are usually covered in glory in business industry, and when two major companies decide to merge it sends shockwaves around the industry. This forces a direct reaction from their rivals, who may place more emphasis on glory rather than business sense and strategy of the merger.
Different Corporate Culture
Different organizations are run on different business models and ethics, which may clash with another company’s in the event of a merger and acquisition. This is a prime example of mergers failing today, where companies look to acquire businesses that do not have the same ethics and business acumen as themselves, and invariably shoot themselves in the foot.
Too many managers and executives ignore the initial difficulties faced in a merger and acquisition and look at the long term goals and glory of the mega deal. This hampers their vision and can incur massive losses on companies, which are not compatible and have been running on different marketing strategies.
Many companies tend to focus too much on cost cutting measures, and making profits when they merge or acquire a business, without paying too much attention to the daily running of operations in the business. This causes them to miss out on the big picture, and results in two thirds of big mergers and acquisitions failing today.
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