The directors of a company and the company itself are particularly vulnerable to risks when they're involved in mergers and acquisitions (M&As). There are often problems in getting the deal right. Traditional due diligence processes need to be thorough.There are many instances of companies who have taken another over only to find that they have bought some serious problems along with the perceived advantages. More companies should also consider cultural due diligence.
It is a fact that most M&As fail to deliver the projected benefits. Estimates of this failure rate vary from 55% to 75%. Most M&A analysts agree that the main reason for failure is a misfit of companies' cultures. Yet this is an aspect that is often overlooked in the drive to push through a deal.
Cultural differences need not be deal-breakers, but they do need to be recognised. A new M&A study carried out by PA ConsultingGroup and the University of Edinburgh Management School found that mergers where the acquirer recognises that there are cultural differences between the companies, deliver significantly greater shareholder value than those where the acquirer believes no cultural differences exist.
Whether 55% or 75%, the failure rate represents an unacceptably high statistic for shareholders. M&As are usually expensive. The fact that most do not succeed suggests that a more apposite definition of M&As could be not mergers and acquisitions but mergers and accusations.