Business Issues: Why Do Acquisitions Fail?

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Surveys have shown that most acquisitions in business do not succeed. One reason for the failure of acquisitions is inconsistent business logic (Pearson Education 2012). Acquisitions fail because most companies fail to establish an acquisition strategy from solid foundations and as a result, the purchase puts a considerable strain on the acquirer’s assets (Connell 2008). Acquisitions fail due to wrong strategies; most acquiring companies lack a clear strategy on which value the acquisition will add to the business. Most acquisitions fail because of opportunism. Most acquirers buy other businesses merely because they are on offer (Cleverley, Song, & Cleverley 2011). In view of this, most acquirers rush to acquire other businesses and fail to consider the alternatives. For instance, the carmaker Toyota got into the luxury auto market profitably through Lexus (Stadler 2011). On the other hand, Ford Company paid a percentage for Jaguar, but afterwards faced excessive assimilation expenses and found that its price per vehicle was much higher than that of Lexus (Kapferer & Bastien 2009).

Inconsistent perceptive of the new business is the other reason acquisitions fail. Most companies misjudge the market by failure to devote the needed time and capital to make sure that the preferred target for the acquisition will produce the most wanted returns. Most businesses often misjudge the influence of new knowledge and additional market changes in the interim but undervalue it in the long-term (Ireland, Hoskisson, & Hitt 2008). Failure to appreciate the business model leads to acquisitions failures. In view of this, the acquirer should make an all-inclusive evaluation of how the target will be incorporated into the new business, and where the process and business improvement returns are to be realized (Kaplan 2000). Other problematic areas that lead to failure of acquisitions include overvalued achievable synergies and problematic areas unidentified in due attentiveness (DePamphilis 2011).

Inconsistent deal managing constitutes the other cause of failure of acquisitions. When acquiring other business, a company should not pay too much for the offer. Many economic experts ascertain that a business is worth what the acquirer is willing to pay. A poor negotiation strategy leads to failure of the acquisition. Many acquiring companies lack a comprehensible negotiation plan that echoes the status of the deal. A poor negotiation plan can amount to provisos that one side of the acquisition considers unreasonable (Thompson & Martin 2010). Lack of an advance integration strategy leads to acquisition failure. Before an acquisition takes place, the acquiring company must have a strategy in place as part of the valuation process, to facilitate in taking rapid action. For instance, BMW purchased Rover in a rush, stealing the business deal at the final minute from a contender. BMW had no comprehensible assimilation strategy at the time, thus; it was unable to run the business effectively before getting rid of the Rover in 2000 at an anticipated shortfall of 4.1 billion Euros (Grubb & Lamb 2001).

Other causes of acquisition failures encompass inconsistent incorporation management. This concept entails aspects like poor communication. Failure to plan business communication, in terms of what is to be said, and the levels of communication lead to acquisition failure. Poor communication in acquisitions leads to misinterpretation and spread of rumours that foil acquisitions deals. Other causes include poor leadership, incorrect steps in implementing changes and misjudging the scales of the task (Krug & Krug 2009).

Defective business development constitutes the ultimate cause of acquisition failure. Most businesses fail to establish control to realize the paybacks of the acquisition. In view of this, many businesses after the acquisition find that the changes they hoped for were out of place, cultural diversities were not addressed, and clients and the individual business was overlooked during the integration (Stahl & Mendenhall 2005).

References List

Cleverley, W, Song, P & Cleverley, J 2011, Essentials of Health Care Finance, Jones & Bartlett Learning, Sudbury Mass.

Connell, R 2008, Why Companies Do Not Pursue Attractive Mergers and Acquisitions, Cambria Press, New York.

DePamphilis, D 2011, Mergers, Acquisitions, and Other Restructuring Activities: an Integrated Approach to Process, Tools, Cases, and Solutions, Elsevier Science, Burlington.

Grubb, T & Lamb, R 2001, Capitalize on Merger Chaos: Six Ways to Profit from Your Competitors’ Consolidation and Your Own, Simon and Schuster, New York.

Ireland, R, Hoskisson, R & Hitt, M 2008, Understanding Business Strategy: Concepts and Cases, South-Western Cengage Learning Mason, OH.

Kapferer, J & Bastien, V 2009, The luxury strategy: break the rules of marketing to build luxury brands, Kogan Page, cop, London; Philadelphia.

Kaplan, S 2000, Mergers and Productivity, Univ. of Chicago Press, Chicago.

Krug, J & Krug, K 2009, Mergers and acquisitions: turmoil in top management teams, Business Expert Press, New York.

Pearson Education 2012, Why Acquisitions Fail-the 20 Key Reasons, Web.

Stadler, C 2011, Enduring Success: What We Can Learn from the History of Outstanding Corporations, Stanford Business Books, Stanford, California.

Stahl, G & Mendenhall, E 2005, Mergers and Acquisitions: Managing Culture and Human Resources, Stanford Business Books, Stanford, California.

Thompson, J & Martin, F 2010, Strategic management: awareness & change, South-Western Cengage Learning, Andover.

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Business Issues: Why Do Acquisitions Fail?

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