Q&A - Why do acquisitions often fail to deliver acceptable returns?

It is widely accepted that over 50% of takeovers destroy shareholder value – i.e. they do not earn a return (higher profits) that justify the investment made.  Why is this?

There are many potential reasons why an acquisition fails to deliver the required or expected returns on investment:

• The price paid for acquisition was too high (over-estimate of synergies).
• Lack of decisive change management in the early stages
• The takeover was mishandled
• Cultural incompatibility (often the case in cross-border acquisitions)
• Poor communication
• Loss of key personnel & customers post acquisition
• The creation of a lumbering giant that is soon outpaced by smaller rivals

Acquisitions therefore provide some important change management challenges. Not only are they relatively risky actions (certainly compared with internal or organic growth), but the risk is heightened if the change management issues are not addressed before, during and after the acquisition.

A fundamental challenge posed by an acquisition is one of corporate culture.  Various stakeholders in the acquired firm face great uncertainty following an acquisition.  For example:

Employees - e.g. uncertainty about acquirer intentions & strategy (cost savings, rationalisation)
Customers & suppliers - e.g. continued relationship; impact on quality
Management (of acquired business) - e.g. duplicated roles, new hierarchy

BUSS4 - a clash of culture and a failed takeover [24 May 2012]
6 Essential M&A Cases: Tata Group buys Jaguar Land Rover [21 May 2012]
Should you buy Facebook shares? [17 May 2012]
AQA BUSS4 - ‘with reference to *** plc and your own research ....’ [13 May 2012]
Takeovers and Mergers - A Casino Gamble? [12 May 2012]
Takeovers and Mergers - Vue on the Growth Trail! [12 May 2012]
Takeovers and Mergers - the failed takeover behind Clinton Cards’ Collapse [9 May 2012]
Vodafone takes over Cable and Wireless Worldwide [23 Apr 2012]
6 Essential M&A Cases: BA & Iberia Merge to Form IAG [23 Apr 2012]
BUSS4: 6 Essential M&A Cases [22 Apr 2012]
Easy ride for Audi? [19 Apr 2012]
Takeovers and Mergers - Cost Synergies in Action at BMI [17 Apr 2012]
Takeovers and Mergers: Facebook & Instagram in News Clips [14 Apr 2012]
ResearchBuster: Acquisitions [8 Apr 2012]
BUSS4 M&A - the Benefits of Foreign Takeovers of UK Firms [7 Apr 2012]
IAG bid for BMI receives approval [3 Apr 2012]
The Main Motives Behind Takeovers and Mergers [26 Mar 2012]
“Strategy is Choice” - Takeovers are Just One Option [25 Mar 2012]
Starbucks acquisition provides the base for entry into the juice bar market [25 Mar 2012]
Game Over? [13 Mar 2012]
Tata & Jaguar Land Rover - Culture and Strategy [11 Mar 2012]
Takeover and merger integration: lessons from the experts (GE Capital) [9 Mar 2012]
Takeover troubles - Has the Co=operative got Indigestion with the Somerfield Integration? [5 Mar 2012]
Takeovers and Mergers - tutor2u Mini Briefs [4 Mar 2012]
Takeovers and Mergers - the BUSS4 Card Game [4 Mar 2012]
Takeovers - the Indian Experience [4 Mar 2012]
Mergers - problems first, synergies later [2 Mar 2012]
Google’s takeover of Motorola Mobility is given regulatory seal of approval [22 Feb 2012]
Takeover insights: Kraft & Cadbury - The Story in Video Clips [22 Feb 2012]
Takeover insights: Kraft & Cadbury - Behind the Scenes of the Bid Defence [22 Feb 2012]
Tata and the rise of Jaguar Land Rover [22 Feb 2012]
Takeover insights: Kraft & Cadbury - Justifying the Deal [22 Feb 2012]
Takeovers and Mergers - the Language of M&A [16 Feb 2012]
AQA BUSS4 CPD Briefing Days in 2012 [16 Feb 2012]
M&A - It’s time to merge breakfast cereals with some crisps… [15 Feb 2012]
The Strategic Challenges Facing International Airlines Group - Interview with Willie Walsh [14 Feb 2012]
For sale - three sixth form colleges [13 Feb 2012]
M&A: 8 ways to make a success of a takeover [12 Feb 2012]
Q&A: What are synergies in takeovers and mergers? [12 Feb 2012]
Insights on takeovers and mergers from KPMG’s 2011 global survey [12 Feb 2012]
Takeovers - the search for cost synergies [7 Feb 2012]
The story of a failed takeover - Fred Goodwin, RBS & ABN-Amro [6 Feb 2012]
Takeovers in the UK - the long-term trend [5 Feb 2012]
Cadbury’s Law - Should UK Firms be Protected from Takeover? [2 Feb 2012]
Mastering the art of merger integration [1 Feb 2012]
BUSS4 research - some initial ideas [31 Jan 2012]
BUSS4 2012 - Mergers and Takeovers on the Business Studies Blog [31 Jan 2012]
The Guardian on Takeovers and Mergers [31 Jan 2012]
Strategic choice: What should Apple do for its investors? [29 Jan 2012]
Consolidation on the cards as IAG claims deal to acquire BMI [6 Nov 2011]
High growth, fast-track firms that end on the scrapheap [2 Aug 2011]
The costs of redundancy [5 Jul 2011]
Focus on customers, not shareholders for long-term success [21 Jun 2011]
Nestle and Diversification - Investing in Healthcare [25 May 2011]
Profit, not external growth, should be the sensible strategy? [22 May 2011]
Strategy explained - Insights into Amazon [13 May 2011]
Whitbread goes for organic growth [2 May 2011]
Horizontal integration in action - Virgin grabs Esporta [26 Apr 2011]
Life in the chocolate factory - automation, productivity, motivation and culture [24 Apr 2011]
Strategy and bargaining power - food for thought [22 Mar 2011]
Change management - Kraft and Cadbury One Year On (FT) [14 Mar 2011]
CSR becomes the Strategy for Co-operative [5 Mar 2011]
External growth - Diageo on the acquisition trail [21 Feb 2011]
Takeovers: What happens next? [16 Feb 2011]
Michael Porter - Shared Value and the Limitations of CSR [15 Feb 2011]
Cadbury and Kraft One Year On - Culture and Change [12 Feb 2011]
Stakeholder or shareholder: who matters most? [28 Dec 2010]
Q&A - What is meant by “synergy” in the context of a business acquisition [28 Dec 2010]
Q&A - Why are acquisitions so popular as a method of business expansion? [21 Dec 2010]
Q&A - Explain what is meant by acquisitions or takeovers [21 Dec 2010]
Growing market share by stealth?  Tesco and One Stop [17 Dec 2010]
Nestle completes takeover of Jenny Craig’s - great synergies??? [15 Dec 2010]
Kraft’s CEO on why it bought Cadbury’s [22 Oct 2010]
Google, Profits and Diversification [16 Oct 2010]
CEO admits “the biggest mistake in corporate history” [29 Sep 2010]
Lesson Worksheet - Business Growth Basics [29 Sep 2010]
Strategy in Action: “Buying Growth is Not a Strategy” [20 Sep 2010]
Chicken Takes Over Burger, But Where’s The Beef? [19 Sep 2010]
External growth strategy - takeovers back in fashion for large UK firms post recession [29 Aug 2010]
Kraft’s Cadbury takeover triggers management exodus [26 Jul 2010]
Is the mega-merger falling out of fashion? [7 Jun 2010]
Growth strategy - takeovers return to building supplies [3 Jun 2010]
Strategy in Action - the Return of External Growth [28 May 2010]
Strategy Case Study - Asda Nets Netto [28 May 2010]
BUSS4 - A Clash of Two Cultures [16 May 2010]
A business that really takes acquisitions and disposals seriously [27 Mar 2010]
Unilever in the recession - the CEO on strategy [25 Mar 2010]
Strategy in the UK Recession - What 69 UK CEOs Did About It [22 Feb 2010]
AQA BUSS4 Section B Practice Question - ITV & News Corp [7 Feb 2010]
AQA BUSS4 Section B Practice Question - Royal Bank of Scotland [7 Feb 2010]
Stakeholders in action - the Bournville demonstration [28 Jan 2010]
Teaching strategy - Cadbury and why takeovers rarely work [24 Jan 2010]
Reflections on the ‘Worst Deal in History’ – and the Best [6 Jan 2010]
What’s behind the BA and Iberia Merger? [19 Nov 2009]
Could mergers come back into fashion? [25 Sep 2009]
A Takeover with a Difference [24 Sep 2009]
Strategy in action - Download Cadbury CEO’s Action Plan [16 Sep 2009]
Todd Stitzer’s Strategic Test [14 Sep 2009]
Revision Presentation - Acquisitions [9 Sep 2009]
Video case study - Rebranding acquisitions [1 Jun 2009]

BUSINESS TEACHER RESOURCE NEWSLETTER
Get first news of business teaching resources, ideas and other materials from tutor2u. Over 9,400 business teachers from the UK and around the world receive our regular teacher email newsletters. Sign up for free here!