Why Do Mergers & Acquisitions Fail?
“Mergers and Acquisitions is a mug’s game”, according to Roger Martin (Martin, R. L. (2016). M&A: The One Thing You Need to get Right. Harvard Business Review, June, p.42-48.) “in which typically 70%-90% of acquisitions are abysmal failures. Why is this so? The answer is surprisingly simple: Companies that focus on what they are going to get from an acquisition are less likely to succeed than those that focus on what they have to give to it.”
I liked Roger’s expose – it is a masterpiece. He cites many examples of failures of major mega-mergers and lays the blame squarely at the door of corporate greed. He says that mergers and acquisitions movers have tended to be more of the ‘what are we going to get from this?’ sort. Of cause, whenever each party to a relationship is solely motivated by a “what’s in it for me” attitude, the chances of the union ever succeeding are next to zero.
Greed and its Cousin
I, however, would want to add another angle to that of corporate greed, something that on closer observation may indeed be related to self-indulgence: It may, in fact, be a cousin. It is called Due Diligence, or rather the lack thereof. We all do some form of due diligence evaluation when we envisage going into a relationship of any kind. We ask ourselves “can I jump into bed with this fellow or with this group?” What we do to answer this sort of question is indeed a due diligence exercise: we scratch our heads; ask friends, we even spend a few sleepless nights ruminating over it. How deep and wide and formally we mull over it will depend on how life impacting the envisaged union is anticipated to be. There are reasons why we may not be inclined to be thorough in our musings. We have already touched on one reason – greed. There is a host of other reasons, such as lust and many such urges. But what is due diligence in a corporate environment?
Here are four takes from businessdictionary.com
1. General: Measure of prudence, responsibility, and diligence that is expected from, and ordinarily exercised by, a reasonable and prudent person under the circumstances.
2. Business: Duty of a firm’s directors and officers to act prudently in evaluating associated risks in all transactions.
3. Investing: Duty of the investor to gather necessary information on actual or potential risks involved in an investment.
4. Negotiating: Duty of each party to confirm each other’s expectations and understandings, and to independently verify the abilities of the other to fulfil the conditions and requirements of the agreement.
In short, it is what a reasonable and prudent person should mull over before going into a relationship or association with another person or group. Here I am using the term “person” in its broad, corporate legal sense to include body corporates. In certain business transactions due diligence is mandated by law; such as the ‘know your customer’ rules in anti-money laundering regulations in banking.
In our bid, therefore, to fare better than the sad statistics and examples that Roger cite in his brilliant article, we are enjoined to delve into our own psychology, our motivation and, throughout the process, ask ourselves whether we are being reasonable and prudent enough. Questioning our own motives may not be as easy as it sounds – it’s easier to spot the devil outside than the one inside. That is why businesspeople, investors and negotiators hire professional due diligence experts to do it for them.
Who are Due Diligence Professionals?
Now, who are these due diligence professionals? The short answer to this lingering question is that they should be professionals knowledgeable and experienced in performing due diligence audits or investigations in the particular field of the target. In the sphere of business, accountants/auditors (including forensic auditors), corporate lawyers and other such corporate practitioners are often the professionals of choice. These experts are required by their professions to be objective in their work and to be not only independent but to be seen to be independent of the party or subject under review. Objectivity and independence are therefore essential requirements for a due diligence investigation. This suggests that the professional will conduct a pre-assignment acceptance due diligence exercise on themselves to ascertain that they meet the strict requirement of independence.
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