Posted: September 4th, 2013
Why do Acquisitions Fail?
Merger can be described as the integration of two or more companies to form a single but larger company. The success of the merger depends on the ability of the new company depends on numerous factors which cannot be attained without the necessary cooperation between the merged entities. Control leads to conflicts in the merger because one company views itself as bigger than the other does.
Among the reasons for failure among the mergers can be attributed to the presence of condescending attitudes among the merged entities. Some feel superior due to their market capitalization of asset base hence prompting them to look down on their junior entities (Straub, 34). Such attitudes have negative psychological effects because the merged companies feel inferior to the larger companies thus affecting the level of productivity of the smaller entities in the merger. The reasons for the mergers determine the success of the mergers. Some entities fear becoming irrelevant and losing their market shares to larger entities. Fear of losing out in the market due to competitiveness drives companies to seek refuge in the umbrella of a merger. A merger promises an entity continued existence within the respective market. The larger entities on the other hand view merging as a means of becoming larger in the market. The failure of mergers can be attributed to the increase in the responsibilities of the entity, managerial duties increase exponentially and the new organization becomes too large to mange effectively (Very, 48).
As organizations form mergers, they enforce bureaucratic systems for management to ensure that all entities which have formed the new company are able to have their needs met. The new company is formed under bureaucratic systems ensure that all the interests the entities are taken care of and no single entity has personalized needs and gains to be met (Levinson, 27). As the organization ages, the bureaucratic systems are not changed hence the company is unable to stay relevant in a rapidly changing market. Obsolescence can be described as the reasons for failure in some mergers because the formed bigger entity fails to overcome its bureaucratic systems to attain growth and relevance in a market. Vested interest among the entities which form the merger can be described as among the reasons as to the failure of mergers. Control in the new merger is usually a source of conflict and disagreements as the existing entities fight for control to establish their ideals and interests provided by control over the entities. The need for control can be attributed to arrogance among the entities because either the companies do not want to be viewed as juniors of another company or they do not want to lose their control (Christensen et al, 29)
Reluctance to change is also another factor, which contributes to the failure of mergers because some of the companies within the merger do not want to relinquish their traditional ways of doing things. Traditional conduct of business among the entities can be attributed to a sense of comfort as the entities seek to maintain their respective market relevance. Such creates vested interest among the entities, which still want to maintain their stature in the market. In addition, the need for a single company to maintain control over other companies has devastating effects on the business model because they are able to assert the authority to satisfy their won egos by considering themselves as in control (Badrtalei, & Bates, 41).
Manipulation of personnel is described as another major factor, which affects the success of a merger. The need for the larger company to manipulate workers to achieve selfish interest has negative effects because the employees lack self-drive and motivation. Hence, it becomes a norm for the larger entity to assert control by manipulating the employees to achieve its objectives; this leads to failure, which become the norm for the company until it crumbles for many reasons such as cost overruns and wrong decision-making. This is because decisions are not made out of respect to the existing agreements but are made out of individual thought due to pride to fulfill individual needs and satisfy egos.
Badrtalei, Jeff & Bates, Donald, L.“Effect Of Organizational Cultures On Mergers And Acquisitions: The Case of Daimler Chrysler”. International Journal of Management. June 2007: Vol 24(2). Print.
Christensen, Clayton M, Alton, Richrad, Rising, Curtis & Waldeck, Andrew.” The Big Idea: The New Merger and Acquisition Playbook” Harvard Business Review. 2011. Print.
Levinson, Harry. “A Psychologist Diagnoses Merger Failures” Harvard Business Review, 2000. Print.
Straub, Thomas. Reasons for Frequent Failure in Mergers and Acquisitions: A Comprehensive Analysis. Wiesbaden: Deutscher Universitäts-Verlag, 2007. Print.
Véry, Philippe. The Management of Mergers and Acquisitions. Chichester: John Wiley & Sons, 2004. Print.
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