5 reasons not to do that Merger deal and 1 reason to do it anyway

You don’t have to be very cynical to suggest that mergers and acquisitions often only make bankers, consultants and lawyers happy or rich.

We’ve all seen it before, but just in case… 

When asked to name just one big merger that has lived up to expectations, Leon Cooperman, the former cochairman of Goldman Sachs’s investment policy committee, answered, "I’m sure that there are success stories out there, but at this moment I draw a blank."  Read The Synergy Trap and hear tompeters! bang on about this.

So here are 5 reasons not to:

  1. you never get the synergy you thought you would
  2. the cost to integrate everyone and everything is way higher than you thought
  3. mergers are about market share but the important thing is creating new markets
  4. the management team gets so distracted that you take your eye off the most important stuff – customers and your current people
  5. the magnitude of uncertainty is way bigger than properly being reported or planned for

And a reason to do it anyway?

When the other entity is seriously undervalued and the value is sitting there in IP which is valuable for your strategic direction. 

[Photo credit: jorowi]

One Comment on “5 reasons not to do that Merger deal and 1 reason to do it anyway

  1. The lack of success in M&A is not surprising. This is where we see the intangibles information gap at its worst.According to Ernst & Young, 70% of the average deal in 2007 world-wide was intangible.Yet a recent study (also related to M&A) by the Hay group shows that executives estimate that that intangibles only make up 30% of corporate value.And it’s a rare management team that has even a basic inventory of corporate intangibles. You’re right. There is advantage in M&A–but only when you know what you are buying.(data above available here: http://www.i-capitaladvisors.com/2010/02/17/intangible-capital-in-ma/)

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