Mergers and acquisitions
Mergers and acquisitions are transactions in which firms combine ownership to pursue scale, scope, or strategic repositioning.
Most acquisitions fail to create value for the buyer. Knowing why is more useful than the deal logic that keeps producing them.
Mergers and acquisitions are transactions in which firms combine ownership, whether by merging into a single entity or by one firm buying another. They are the most dramatic moves in corporate strategy, used to gain scale, enter new markets, acquire capabilities, or remove a competitor.
The persistent value gap
Decades of evidence point the same way: a large share of acquisitions fail to create value for the acquiring firm, and many destroy it. The targets' shareholders usually do well, because acquirers pay a premium; the acquirers' shareholders often do not, because the premium assumes synergies that fail to materialise. The deal can be strategically sound and still be a bad deal at the price paid.
Where value leaks
Value escapes at predictable points. Acquirers overpay, competing in auctions that transfer the gains to the seller. They overestimate synergies and underestimate the cost and difficulty of integration. And they neglect the human reality that two cultures, two sets of systems, and two anxious workforces do not merge by decree. The strategic rationale is debated for months; the integration that determines success is often improvised.
Discipline over enthusiasm
The acquirers who do well tend to share habits: a clear view of exactly where value will come from, the discipline to walk away when the price exceeds that value, and serious attention to integration from the outset rather than as an afterthought. They treat acquisition as one option among several, including building the capability internally or partnering for it, rather than as a goal in itself.
The uncomfortable truth is that the energy and prestige surrounding deals work against good judgement. The questions that protect value, what exactly are we buying, what will it take to realise the gains, and what is the most we should pay, are quieter than the momentum of the deal, and easily drowned out by it.