Why Acquisitions Fail: A Closer Look on Three Biggest Reasons

It’s a story often told: when you want to penetrate a different niche, tap a new market, or launch overseas, you acquire businesses. However, that is easier said than done. Experts believe that up to 90% of these acquisitions turn out to be an abysmal failure.

Even solid businesses are not immune to that. Think of Microsoft and Nokia or Hewlett-Packard and Autonomy. Doing it wrong can hurt your organization’s financial position and brand. It can demoralize employees because of layoffs and active disengagement.

The right treatment is getting into the root cause. Why do acquisitions fail in the first place?

1. The Divestiture and Integration Process Isn’t Clear

Acquisitions can be a dud when organizations don’t pay attention to two critical processes, which are divesting and integration. It could be that:

  • The goals of the original parent company and the new one don’t match.
  • It may be necessary to maintain business as usual during the transition.
  • The workflow of the new business doesn’t align with that of the acquiring company.
  • The systems the business segment use don’t work in the new organization.
  • The acquisition will cause redundant jobs.
  • The organizational culture for both is incompatible.

Acquiring a business changes many factors, including the lives of employees. It demands a clear-cut plan and expertise. To avoid the mess, businesses can work with an acquisition integration consulting team.

2. The New Business Doesn’t Match the Core Operations of the Acquiring Company

team meetingMany companies gain or merge with another hoping to provide added value to their service. This was the tale of the auction giant eBay and Skype, which was still a newbie back in 2009.

The former bought the latter for over $2 billion (which was an insane amount at the time). eBay thought Skype would improve customer service by giving their clients a chance to use voice-over-Internet protocol (VOIP).

After four years, the partnership failed miserably with eBay selling Skype for only $1.6 billion. Reason: customers didn’t want VOIP. They’re already happy with emailing customer support as it promoted anonymity.

3. There’s Lack of Leadership

Moving a business segment or acquiring the entire organization and merging it to another will always be like sailing through uncharted waters. The waves can be rough.

However, like in a ship, while many can be crew members or sailors, only one is the captain. Sadly, acquisitions sink when leadership drowns, especially when it leads to severe repercussions.

That’s exactly what happened with HP, which suffered immensely for many years because of poor decisions by their leaders. These bad judgments included slashing the budget for research and development and then spending tons of money on bad acquisitions, such as Autonomy.

The Autonomy deal cost over $10 billion, which members of the board thought back then was overvalued. But that’s not all. Poor leadership eventually bred a lack of due diligence. It was only later when they discovered the new acquisition bloated their numbers.

Acquisitions need a careful, well-thought-out plan from start to finish. Otherwise, it can shake even the most formidable businesses to the core. Creating the right team will be one step to doing it right.