Why Half of Acquisitions Fail

About the Episode

Mark analyzed 1,200 acquisitions over a 24-year period of time and realized that less than half were successful. Why were only half successful, and what did they have in common? Mark is the co-author of The Synergy Solution and has spent more than two decades helping companies ensure their acquisitions are successful. In this show, we discuss how to measure the success of an acquisition, how accurately the market can predict the success of an acquisition, and what successful acquisitions have in common.

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In this Episode

Highlights

• A 20% to 50% premium is usually paid for synergies (the average is 30%) and is paid up-front, which creates a new set of problems for the acquirer.
• Acquisitions are different from other corporate development programs because you pay up-front, pay a premium, have a high exit cost, and acquisitions are very expensive to unwind, as opposed to other options.
• Most acquirers are highly reactive, as opposed to strategic and proactive. A well-defined M&A strategy is critical to ensuring acquisitions are successful. Many acquirers take a hodgepodge approach to M&A. Successful acquirers know exactly what they want, how they are going to create value, and establish a watch list of companies they want to acquire. For example, there might be 500 companies in your universe, and you make a watch list of 20 deals to pursue.
• M&A must be considered as carefully as your overall corporate strategy. Each deal represents a slightly different strategy, requiring different planning and diligence strategies. Ask yourself – what does doing this deal allow us to do that we could not have done without doing this deal?
• The more you look, the more you find. The more you find, the more you learn. The more you learn, the more you test your strategy. Your strategy should be dynamic, constantly evolving, and tested.
• Many aspects of acquisitions are disconnected, such as strategy, diligence, and integration. This disconnect is one of the primary reasons acquisitions are unsuccessful.
• Acquisitions are measured based on shareholder returns adjusted for peer-performance (relative total shareholder returns), both on the announcement date and over time. Approximately 60% of deals are met with negative market reactions and 40% with positive market reactions. The market’s reaction is a surprisingly accurate predictor of the success of an acquisition. Acquisitions that deliver have wonderful returns. It’s not that deals fail – poorly designed and executed deals fail.
• Assumptions in the acquirer’s valuation model become promises that must be fulfilled post-acquisition. The acquirer must deliver on their promises after the acquisition.
• The purpose of commercial diligence is to test hypotheses. You should test the assumptions of your valuation model in due diligence. If you try to boil the ocean in due diligence, you will lose sight of the most important components of your strategy that need to be tested.
• You must consider the cost of integrating a company.
• You can assess the strategic intent of a company based on the acquisitions they make over a period of time.

Learn More About This Episode

• Why do companies acquire other businesses?
• The Future of M&A Strategy with Raghav Ranjan

Resources Mentioned in This Episode

• The Synergy Solution: How Companies Win the Mergers and Acquisitions Game
• The Synergy Trap

Meet Our Guest

Mark Sirower

Principal with Deloitte Consulting LLP | New York, New York

Mark Sirower is an internationally recognized expert on M&A and author of the best-selling book, The Synergy Trap: How Companies Lose the Acquisition Game, and co-author of The Synergy Solution: How Companies Win the Mergers & Acquisitions Game.

A Principal with Deloitte Consulting LLP and a leader in the Mergers & Acquisitions practice, Mark has more than 25 years of experience advising on hundreds of deals for corporate and private equity clients. He advises on all things M&A, including strategy, growth and innovation, target screening, commercial and operational diligence, valuation, investor relations, pre- and post-close merger integration, and governance issues.

An adjunct M&A professor at NYU’s Stern School for the past 30 years, Mark has also taught at the Wharton School of Business and is a frequent media contributor and guest speaker at global M&A conferences.

LinkedIn: https://www.linkedin.com/in/mark-sirower-75350a8/