For many mid-market companies, growing through acquisitions is a tempting and exciting option. The statistics, however, point to a more sobering reality: As many as half of all marriages between companies fail to meet the expectations of either side.
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In a 2009 survey of 100 large corporate executives and M&A professionals commissioned by Merrill Corporation, most respondents (44 percent) cited merger success rates of just 26 percent to 50 percent, and 15 percent of the respondents reported success rates below 15 percent. A 2006 study in the British Journal of Management paints a similar picture: The overall failure rate of M&A deals, according to separate research over the past 30 years, ranged between 44 and 50 percent. In other words, the odds of a successful acquisition are roughly the same as a coin toss.
Why is this? Most research on the subject indicates that the leading cause of a failed acquisition is a conflict between the goals, strategies or management styles of the two merging companies. Sadly, these conflicts do not surface until after the deal is complete and the integration process is already under way.
While a large firm can write off most of their bad acquisitions from the profits of their much larger, core business, mid-market firms are particularly vulnerable to bad deals. Most mid-market firms have no corporate development function, and those that do have it thinly staffed. They typically make and integrate acquisitions using their line executives, which distracts them from core operations. While mid-market M&A activity seems to be improving, the truth is most firms are not in a position to take big risks. Getting it right is critical, and given our deal experience we can make that happen.
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