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Failure of Merger & Acquisition

> Discuss reasons why an M&A fails, such as technical and legal insolvency, and bankruptcy.
> Consider what happens to the stakeholders, company image, price-per-share, market share, company assets, industry position, goodwill, and service capability. Once the failure of an M&A occurs, what happens to assets of both companies?
> Compare and contrast two to three forms of corporate restructuring. Would you recommend any of the following?

o Spin-offs
o Divestitures
o Liquidation
o Carve-out

> Defend your position.

Solution Preview

Discuss reasons why an M&A fails, such as technical and legal insolvency, and bankruptcy.
Mergers are like marriages. The right partner must be selected after an honest and meaningful courtship. There must be communication, flexibility and mutual respect for successful merger. Possible benefits of this merger to both the organizations can be:
1) Economies of Scale due to larger size
2) Improving profitability by sharing the synergies
3) Leverage the complimentary competencies to improve the market share
All these can lead to better growth and reduction in costs which will lead to better profitability.
But there can be limitations to the mergers. Mergers can be a failure due to various reasons. As per rediff.com, McKinsey reviewed nearly 1,000 global mergers and acquisitions from 1997 to 2006. It compared share prices two days before and two days after each deal was announced. The analysis shows that value created in deals between 2003 and 2006 averaged 6% of the transaction values, whereas those between 1997 and 2000 average less than 2% and though an alarmingly high 58% of all acquiring companies are still overpaying for acquisitions - this is better than the 70% that were doing so in 2000. The most important reasons for failure of M&A are failure of leadership, failure of integration, communication failures, and failure to populate the new organization with sufficient talent. (rediff, 2009)

Consider what happens to the stakeholders, company image, price-per-share, market share, company assets, industry position, goodwill, and service capability. Once the failure of an M&A occurs, what happens to assets of both companies?
Some of the precautions to be taken in case of Merger:
As per bizjournal.com the reasons of merger failures are:
Technology Integration.
PricewaterhouseCoopers' recently surveyed senior executives ...

Solution Summary

Response helps in discussing the failure of Merger & Acquisition. References are provided.

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