Merger and acquisitions failure

Mergers and acquisitions are the method by which two businesses combine to become a single entity. In terms of market share, the volume and caliber of products produced, and the assets held by a company, a more stable corporation absorbs the less strong company. The more powerful corporation gains the name, and the less reliable company is no longer. The more powerful corporation buys out the smaller one and takes on all of the merging firm’s obligations and rights.

Because mergers and acquisitions typically have some effects on the final consumer of the goods or services produced by the subject companies, the government has some control over their regulation. This is because, when competitors merge, which typically happens, the powerful company that remains standing assumes monopoly power which normally leads to an increase in prices.

Mergers and Acquisition (M&A) failures

Mergers and Acquisitions Failures

Mergers and Acquisitions face a failure rate of up to 90%.This is because some assumptions made earlier on strengths of the absorbed firm sometimes turn to be fatal, this is logic as you only get to understand more of something you buy after using it for some time and an example would be the purchase of Skype by eBay to facilitate communication between buyers and sellers. The company bought it for 2.6 billion dollars and after four years sold it for 1.9 billion dollars(Gaughan, 2010).

eBay expected synergy from Skype’s incorporation as the communication channel between their buyers & sellers on its market podium which unfortunately did not become popular among its market players. Some reasons that lead to failures of M$A include the ones discussed below;

Limited or no Involvement from the Owners

After the company is absorbed the owners of the company leave all the work to the advisors of the company that absorbed it. This is wrong as the owners of the company have enough know-how and experience with the company they managed thus they should work with the experts of the firm that merged them till the knowledge has been passed on as this gives the experts a better understanding of the company they just merged as theirs. This leads to losses due to lack of knowledge and experience on a product and will result in losses which may later make the company bankrupt or result in insolvency as the absorbed firm failed to meet expectations but brought about liabilities (Gaughan, 2010).

Cultural Integration Issues

After merging occurs the owners of the business may tend to change the branding of their products with little or no knowledge on the impacts it will have on the local market. Sometimes their branding has an adverse impact on the local society i.e. the colors used or signs on the package may not be taken positively by the locals. In this regard after merging occurs, a study of the market should be done, or the original owners of the absorbed firm left to run some departments that can be influenced by culture (Gaughan, 2010).

Lack of Clarity and Execution of the Integration Process

A big challenge arising from merging companies is the post-merger integration. A keen assessment can help to identify crucial projects and products, key employees, bottlenecks impacts, sensitive processes, and matters, etc. Using such keen study helps with formulating processes for clear integration, aided by consultations, outsourcing options i.e. from business journals automation or automation can be fully explored without such keen study the results are always fatal including long-term losses that lead to the bankruptcy of the business and even insolvency to revive the initial firm independent activities (Gaughan, 2010).

Impacts of Merging and Acquisitions Failure on Involved Firms

When merging and acquisition failure occurs, it has a negative impact on the firm’s image as its seen as unstable in its activities, merging failures also affect stakeholders in that the external stakeholders i.e. customers will lack products that were being produced or buy them at high price due to the business strain to get back to its toes. The company assets will lose value to some point, and the company’s share will face a tremendous reduction in value and the capability of the firm to offer services will be negatively affected (Krug, Wright & Kroll, 2014).

Forms of Corporate Restructuring

Corporate restructuring is the act of passing on the legal ownership of the company from one party to another aimed at making more profits or make it more organized to fit the suitable needs of the time (Gaughan, 2010).

Financial Restructuring

Its achieved by coming up with restructuring schemes that abide by the laws and is carried out with the consent of corporate stakeholders who have accumulated huge losses. It impacts huge changes on the financial structure of a firm leading to change in control and ownership (Gaughan, 2010).

Divestitures

This is a form of corporate strategy in which a company transfers one or more of its segments to another company for securities or cash. It doesn’t involve the sale of total assets but only some i.e. product line, plant or subsidiaries (Gaughan, 2010).

Strategic Alliance

This is where two companies come to an agreement on activities that will mutually benefit them in profits made, increase in product quality and quantity. In this form of reconstructing, companies combine their resources to achieve a mutual goal but stay independent (Gaughan, 2010).

I would embrace corporate strategies i.e. divestitures, curve outs and liquidations as it helps in achieving a set goal and adds up unity among organizations. This unity will result to quality end products and services as knowledge between the two firms is blended to reach a goal. Problems such as financial problems are also spread among companies who have decided to work together hence they can bail each other (Gaughan, 2010).

All businesses eager of possible advantages from mergers and acquisition cannot get a checklist that ensures success from merging and acquisition deals. The success rate of merging and acquisition practices remain low. The majority of the merging and acquisition practices result in loses due to the factors discussed above. Business advisors, owners, and associated participants should be cautious of the possible risks, avoiding the avoidable to get a secure and successful merging and acquisitions practices.

References

Gaughan, P. A. (2010). Mergers, acquisitions, and corporate restructurings. John Wiley & Sons.

Krug, J. A., Wright, P., & Kroll, M. J. (2014). Top management turnover following mergers and acquisitions: solid research to date but still much to be learned. The Academy of Management Perspectives, 28(2), 147-163.