Why Companies Do Not Pursue Attractive Mergers and Acquisitions
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Why Companies Do Not Pursue Attractive Mergers and Acquisitions ...

Chapter 1:  Introduction
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While there appears to be a consensus that failure rates are high, studies that seek to establish and quantify the relationship between M&A activity and performance are inconclusive (Lubatkin, 1983; Pablo, 1991, 1994; Roll, 1986, as cited in Hitt, Hoskisson, Ireland, & Harrison, 1991). Directly measuring or inferring success and failure is problematic. Scholars in different disciplines use varying perspectives, each with its own set of foci, criteria, assumptions, and methodologies. As illustrations, a financial perspective based on the capital asset pricing model (CAPM), an organisational human resources view, and a strategic management perspective are described in appendix 1.

Differences in approaches, measurements, indicators, time frames, samples, and methods and units of data analysis, some of which are described in the appendix, all contribute to the significant variance in success/failure ratios in the literature. While it is outside the scope of this book to compare and contrast differences in the actual ratios or rates, the following are indicative of their overall level:2

  • Fourty percent fail to live up to expectations (W. T. Grimm, 1988).
  • Fourty to fifty percent are failures (W. T. Grimm, 1985, as cited in Bagchi & Rao, 1992).
  • Twenty-two percent met all management’s objectives; 34% had lower sales than preacquisition; 46% had lower profits (Ansoff et al., 1971).
  • Thirty-five percent were failures (Kitching, 1967).
  • Thirty-eight to seventy-six percent were considered doubtful by management or were liquidated or divested, with the failure rate declining with experience (Booz, Allen, & Hamilton, 1960, as cited in McCarthy, 1963).
  • Fifty-three percent of U.S. acquisitions made between 1950 and 1986 were subsequently divested (Porter, 1987, as cited in Vos & Kelleher, 2001).
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