Introduction
The modern business environment is increasingly competitive. New technologies in the market mean that old technologies are growing obsolete far much faster. New start up companies are emerging which replicate the successes of established firms at a much lower overheads. Layoffs and cost cutting initiatives are increasing being countered by lawsuits and industrial strikes. However, in this competitive business environment the company executives are increasing under pressure to deliver value for their shareholders.
In this context, acquisitions and mergers are increasingly becoming viable options to business reengineering, value generation, value retention and business efficiency promotion. Metz (2001) notes that, “…acquisitions are strategic alternatives that can help companies promote a better way of doing business and maintain their competitive edge over the long run.
Acquisitions can help companies attain strategic goals more quickly, promote operational change, and attack markets where its technologies can produce higher levels of growth” (p.1). However, in the modern economic context an increasing number of acquisitions are failing for various reasons.
Reasons for acquisition failing
According to Metz (2001) some of the reasons resulting into acquisitions failing include “…flawed strategic vision, inadequate due diligence, poor integration, and clashing cultures” (p.1). In the context of flawed strategic vision, Metz (2001) blames a majority of the business executives concentrating on the financial outcome of the acquisition instead of the core capabilities embedded in the company that is visible in its products and services.
Such a focus may make the acquisition more interested in the financial outcomes without building the corresponding core capabilities in the acquisition needed to drive the financial growth and outcomes (Siegenthaler 2010; Ingram 2011).
Rankine (2012) further notes in the context of flawed strategic vision, that sometimes companies make acquisitions as quick fix solution to their struggling business performance. Such a solution further deteriorates the situation as was the case when the person computer Compaq Company acquired Digital Company (Rankine 2012). Both companies at the time were struggling in their respective markets thus aggrevating the situation.
Clashing cultures is also one of the reasons emerging as a major reason for acquisition failure. Metz (2001) notes that “…acquisition impact important elements of economic and psychic value such as job security, promotion, career opportunities, status and pride of association.” (p.1). Gome (2012) concurs with Metz noting that “…the biggest challenge in any acquisition is the people integration” (p.1).
Both Metz (2001) and Gome (2012) note that inadequate due diligence in the acquisition is another major reason for acquisition failure. In the context of due diligence, several dynamics ought to be examined including expenses, market niches, and management styles amongst other functions and aspects (Metz 2001; Still 2010).
On the other hand, Gome (2012) cites several documents that ought to be closely examined including tax filings, assessment of key employees and agreements with third parties amongst other factors. In the context of inadequate due diligence, Ferranti got into bankruptcy due to poor due diligence on acquisition of ISC. The firm had over lied on a flawed KPMG opinion (Rankine 2012).
Lack of proper integration is another factor that can make acquisitions fail
(Payling 2009; Evans, 2000).Management executives need to plan for the integration of the two companies into a new outfit with its distinct operations (Siegenthaler 2010; Still 2010). In this context, integration needs to consider aspects such as communication styles, sharing of responsibilities, and management of change amongst other factors (Salame 2006; Petkova & Do 2012)
Conclusion
It is no doubt that a majority of the reasons advanced on failure of the acquisitions can be avoided with proper planning and adequate experience around acquisitions.
References
Evans, M. (2000) Mergers & Acquisitions. Web.
Gome, A. (2012) Why acquisitions fail: Top 6 blunders. Web.
Ingram, M. (2011) Why most start up acquisitions fail-and always will. Web.
Metz, T. (2001) Why Acquisitions Fail. Web.
Payling, S. (2009) What makes Mergers and Acquisitions Succeed or Fail. Web.
Petkova, M. & Do, Q. (2012) Do acquirers fail to deliver value to their shareholders? Web.
Rankine, D. (2012) Why Acquisitions Fail-the 20 Key Reasons. Web.
Salame, R. (2006) Why Do Mergers Fail? What Can Be Done to Improve their Chances of Success? Web.
Siegenthaler, P. (2010) Ten reasons mergers and acquisitions fail. Web.
Still, J. (2010) Why acquisitions fail. Web.