The New M&A Playbook - Article - Faculty & Research (2024)

FAQs

Why do up to 90% of mergers and acquisitions fail? ›

Factors Contributing to the High Failure Rate

Too often, deals are struck without considering cultural fit between companies or developing clear integration plans. M&As aren't just about gaining market share; they're also about creating shareholder value by achieving operational efficiencies post merger.

An M&A Playbook is a detailed, prescriptive roadmap, which sets standards and provides guidance and tools for all areas and levels of the company in each successive phase of the M&A life cycle. It helps accelerate and ensure achievement of the intended business outcomes.

M&A is a mug's game: Typically 70%–90% of acquisitions are abysmal failures. For example, when a company uses an acquisition to enter an attractive market, it's generally in “take” mode. That was the case in all the disasters just cited.

According to multiple studies, 50-90% of mergers and acquisitions fail to achieve the expected value.

Value destruction, poor communication and integration, and cultural differences are some of the most common reasons. If these issues are not addressed, it can be very difficult to make a merger or acquisition a success. Lastly, another common reason for failure is that the two companies simply are not compatible.

In 2023, US PE deals fell 15% from 2022 and roughly 25% from their 2021 peak, while US corporate M&A for deals over $100 million fell 17% from 2022 and were about 45% lower than their 2021 peak.

The job can be unpredictable, with long hours and late nights required to get the deal done. Despite this, a career in M&A law can be rewarding. There are opportunities for advancement within the field, including making partner, and the work can be fast-paced and exciting.

M&A Success Fees by Deal Size

For deals valued at $5 million and $10 million, the most common fee is between 4% and 5.9%. For $20 million and $50 million deals, fees are most likely between 2% and 3.9%. And for deals of $100 million and $150 million, the most common fee range is 1% to 1.9%.

What is the largest M&A deal ever? ›

1. Vodafone and Mannesmann (1999) - $202.8B ($373B adjusted for inflation) As of March 2024, the takeover of Mannesmann by Vodafone in 2000 was still one of the largest acquisitions ever made.

Economic recessions typically lead to a decrease in overall M&A activity for a variety of reasons. During a recession, both buyers and sellers usually become more cautious and risk-averse, which can slow down deal-making.

Acquisitions can be a strategic move to bolster growth. The journey following a successful acquisition contains many potential pitfalls. Harvard Business Review reports that somewhere between 70% and 90% of mergers fail during the post-merger integration phase.

Overvaluation and hence overpayment for a target is one of the major reasons why acquisitions fail. Acquirers typically share the expected benefits or synergies from acquisition with a target firm in the form of a premium paid. Overvaluation of target translates into higher premiums paid.

The main reason that most mergers and acquisitions negatively affect shareholder value is often attributed to the failure to realize the promised synergies. The studies indicate that a significant proportion of acquisitions fail to deliver increased operating profits and in many cases, profitability declines.

But there are risks—things that can lead to a failed M&A deal—such as overpaying or the inability to properly integrate the two companies. M&A can affect a company in a number of ways, including its capital structure, stock price, and future growth prospects.