The record of mergers and acquisitions have not been impressive all over the world. Most of these deals fail or are unable to achieve its projected growth and targets. The most common reason responsible for the failure of M&A deals are the cultural differences in the organisations. This paper discusses the reasons why most M&A deals fail with help of 2 examples.

1. Global Business Environment
Submitted by:
NISHTHA JAIN
0161MBA092
CES 2
Assignment
THE RECORD OF MERGERS AND ACQUISITIONS HAVE NOT BEEN IMPRESSIVE ALL OVER THE
WORLD. WHAT ARE THE REASONS FOR THE FAILURES OF MERGERS AND ACQUISITIONS? DISCUSS
WITH THE HELP OF 2 EXAMPLES OF THE ORGANIZATIONS HAVING FAILED MERGERS AND
ACQUISITIONS.
Regulatory liberalisation and growing competition are two major driving forces behind the
restructuring which is taking place across the various industries, with many companies looking to
merger and acquisitions to enhance their range of products and services and strengthen their
market share.
Acquisitions
Acquisitions can either be in the form of share purchase, whereby controlling interest in the target is
acquired, or it could be in the form of acquisition of a business undertaking. While share acquisition
is an effective solution, where the acquirer seeks to acquire entire control over the target, it
becomes inevitable for asset acquisition in cases where the acquirer wants to assume control of an
identified business undertaking.
Mergers
Simply put, a merger is a combination of one company into another, whereby the transferor
company loses its existence upon merger with the transferee company. Various types of mergers
include horizontal mergers (merger of companies involved in the same industry and in direct
competition), vertical merger (merger of two companies operating in the same industry but at
different level within the industry’s supply chain) or a conglomerate merger (where completely
unrelated companies come together to achieve synergy benefits).
What can go wrong in M&A deals

2. The selection decisions are generally driven by financial and strategic considerations; yet many
organizational alliances fail to meet expectations due to incompatible culture of the partners. The
M&A not only integrate two companies, but also bring together large group of people with their
diverse personalities, ambitions, behavioural traits and working methods.
 Poorly Managed Integration: Management plays an important role in the integration of
companies, it requires lots of planning. If organization doesn‘t do that it fails such attempt, poor
management results in failure of good deals.
 Size issue: Some time difference in size of companies also creates problems. Many mergers fail
either because of ‗merger indigestion‘ through buying too big targets or by not giving the smaller
mergers the time and attention it required.
 Lack of experience : Experience plays an important role in any activity, Previous experience will
help the acquirers to learn from the previous merger mistakes and help them to make successful
mergers in future.
 Lack of proper Strategic fit: If strategic fit between 2 merging companies are good, then merger
will yield synergistic gains. Mergers with strategic fit can improve profitability through reduction in
overheads, effective utilization of facilities, the ability to raise funds at a lower cost, and deployment
of surplus cash for expanding business with higher returns.
 Cultural Issues: The factor which plays an important role in integration is cultural issue. Lots of
mergers fail because of cultural difference. Cultural fit and integration of organization are very
closely related. It‘s very difficult to do a successful integration without cultural fit.
 Failure of Top Management to Follow Up: Sometimes top management doesn‘t make much effort
in making things happen. Top management follow up is essential to go with map of action to be
taken and also has to set the pace for implementation. Initial few months after the integration
decide the pace of growth.
 Communication: Communication plays a vital role in any activity. Lack of proper communication in
M&A‘s creates lots of uncertainties. The objective of proper communication is to minimize as much
uncertainty as possible, especially with regard to issues that directly impact people and organization.
If any company fails in managing proper communication, it results in loss of trust in management,
safety problem, bad customer service, and most importantly the loss of the support of key
stakeholders at a time when that support is needed the most.
 Limited Focus: In Conglomerate merger, if two organizations are from entirely different market
and culture failure of integration is very high. In such cases focus gets blurred as new organization
now has to work and focus on many units, and core competencies get weakened.
 Failure to take Immediate Control: Control of the new unit should be taken immediately after
signing of the agreement. Most evidence suggests that mergers are more successful when merging
firms make related products.

3.  Failure of Leadership Role: Some of the roles leadership should take seriously are modelling,
quantifying strategic benefits, building the case for M&A activity and establishing high standard for
value creation. Walking the talk becomes very important during M&A‘s.
Example
Case #1: Daimler-Chrysler (Failure)
The M&A between German-based Daimler-Benz and US-based Chrysler which demonstrated there
was little or no cultural fit. “Chrysler had a reputation for having a more freewheeling, open culture,
in contrast with the more traditional, top-down management style practiced at Daimler.” Daimler-
Benz was described with words like conservative, efficient, and safe, whereas Chrysler was seen as
daring, diverse, and creative. The merger of Daimler-Benz and Chrysler is a perfect example of
merger failure due to incompatible cultures. Daimler-Benz and Chrysler operations and management
could not properly integrate because of the different approach of Germans and Americans to work
particularly administrative issues such as pay scales and travel expenses. Ultimately, a large numbers
of key Chrysler executives and engineers resigned and Daimler-Benz employees were dissatisfied
with Chrysler division performance.
Much of this non-cultural fit resulted in the failure of the acquisition. The intentions of Daimler-
Chrysler were admirable for technology sharing, market growth, shared resources, but a true
evaluation of cultural fit never successfully materialized resulting in a predictable failure. The
cultural fit seeks similarities in style, leadership, direction, communication, and organization policies.
Although it is not imperative that a company must have similar cultures, it is definitely a hurdle if
they are so very different from one another, requiring extra time, attention, and communication in
order to integrate the two.
Case#2: Ford-Volvo (Failure)
In 1999, the Volvo Group sold Volvo Cars to the Ford Motor Company. Ford would benefit from the
engineering and safety expertise of Volvo while Volvo would benefit strategically from being part of
the overall Ford group
Ford had a highly formal and professional approach and Volvo was informal and flexible. At Ford,
engineers are not allowed to make decisions and all information was passed up the chain to
managers, while engineers made the decisions at all levels at Volvo.
The integration phase was a long and complex affair. For example, Ford executives would be sent to
meetings knowing that they did not have authorization to make decisions that Volvo executives
would be able to do. -The Volvo value was lost as Ford gradually imposed its formal organizational
structure on it. Volvo lost the days of speedy, flexible and “turning on a dime” decision making as
engineers were no longer authorized to make these choices. Ford was manoeuvring Volvo into the”
Ford way” of running the business.
Conclusion
Due to globalization, liberalization and rapid technological change, business firms now face more
competition from all around the globe. To face this competition, every business firm has to work

4. very hard for profit maximization. For profit maximization, expansion of business is necessary and
due to this change in business environment, mergers have become very popular over last 40 or 50
years .The main objective of merger is expansion and wealth maximization of shareholders in terms
of synergy gain, increase in market share, better service to the customer and better financial and
marketing advantages.
Along with financial aspects, it is very necessary to take care of cultural issues and employee issues
of both firms for a successful merger. But due to lack of consideration of cultural issues and
employee issues and giving more importance to economical gain and financial aspects many mergers
result in failure. This eventually affects the customers and shareholders of both companies.
References
1. https://www.pwc.in/assets/pdfs/trs/mergers-and-acquisitions-tax/mergers-and-
acquisitions-the-evolving-indian-landscape.pdf
2. http://www.ifeama.org/jsaam/taikai_annai2016_program/B-6.pdf
3. https://digitalcommons.kennesaw.edu/cgi/viewcontent.cgi?article=1031&context=jee
4. https://pdfs.semanticscholar.org/0a04/0b2496891abf6e90247f3cc617a7cd4aac94.pdf