Introduction: Debunking the Myth of Acquisitions Failure
For many years, the belief has persisted that most acquisitions fail. This article aims to challenge that notion by providing a comprehensive analysis of the reality behind the success rates of mergers and acquisitions (MAs). Contrary to popular opinion, data suggests that the majority of these transactions actually yield positive results.
Quantifying Success in MAs
Many studies focus solely on the acquirer's financial performance post-acquisition, which can lead to misleading conclusions. These analyses often fail to account for the myriad factors that influence the success or failure of an acquisition. These include the impact on the target company's stakeholders, such as employees, customers, and suppliers.
Challenges in Defining Success Metrics
One major challenge in quantifying the success of an acquisition is the difficulty in isolating its impact from other business factors. Unlike testing a new feature on a website, there is no A/B testing method that can accurately measure the contribution of an acquisition to the acquirer's strategy and performance.
Assessing the Actual Success Rates
Despite the challenges, multiple studies have provided insights into the actual success rates of MAs. For example, a 2018 study by PwC found that 55% of deals resulted in positive shareholder returns within the first five years. Moreover, a 2020 report by CB Insights analyzed 1060 MAs from 2011 to 2020 and found that over 60% of the deals created long-term value for the acquirer.
Success Stories vs. Failure Stories
While failure stories like Microsoft's write-off of Nokia's mobile business and Google's sale of Motorola's mobile business do exist, they are often the exceptions rather than the rule. These high-profile examples tend to overshadow the numerous success stories that occur daily in the global business landscape.
Measuring Likelihood of Success
A more practical approach to assessing the likelihood of an acquisition's success is to consider its popularity and the rate at which they occur. The principle of charity suggests that parties involved in MAs are as well-informed and data-driven as others, and enter into these transactions with a clear strategic vision.
Overcoming Inertia and Skepticism
For most acquirors, the decision to pursue an MA is preceded by significant deliberation and rigorous due diligence. Inertia, internal skepticism, and the need to convince key stakeholders all contribute to the complexity of the decision-making process. Despite these challenges, a majority of acquirors express satisfaction with their deals, according to surveys by Deloitte.
Conclusion: The Reality of Acquisition Success Rates
The myth that most acquisitions fail is not only misleading but also harmful to the broader understanding of business strategy and decision-making. While there are certainly examples of failed acquisitions, the data overwhelmingly suggests that the majority yield positive outcomes. As businesses continue to navigate the ever-changing landscape of the global economy, understanding the true success rates of MAs is crucial.