Nuno Fernandes is Professor of Finance at IESE Business School. This is based on a book, recently published with Palgrave Macmillan. Related research from the Program on Corporate Governance includes Are M&A Contract Clauses Value Relevant to Target and Bidder Shareholders?; M&A Contracts: Purposes, Types, Regulation, and Patterns of Practice; and Why Have M&A Contracts Grown? Evidence from Twenty Years of Deals, all by John C. Coates, IV.
In a business climate marked by escalating global competition and industry disruption, successful mergers and acquisitions are increasingly vital to the growth and profitability of many companies.
Yet research shows most mergers fail—destroying shareholder value and costing companies billions in dollars. Over the decades, multiple studies have shown that most mergers and acquisitions fail to generate the anticipated synergies—and many actually destroy value instead of creating it. In other words, a significant percentage of M&As cause 2 + 2 to equal 3 instead of 5.
So, why do so many companies continue to pursue these value-destroying deals? What can be done to reverse this sad state of affairs? How can companies dramatically increase the odds that their future M&As will be among the minority that actually succeed? And how can managers and boards increase their odds of M&A success?