Thursday, 29 January 2009

Mergers & Acquisitions and High Marriage Divorce Rates

When the mean average success rate for acquisitions is just 45%, acquisitions must be seen as a high risk strategy. The spend is high and so is the risk. However, the statistical scatter of successes is very broad and with the right knowledge and processes your risk can be dramatically reduced.

When looking at studies that have been conducted on post acquisition success rates, it is obvious that executives have choices to make throughout the acquisition process that, when made thoughtfully, with the right know-how, guidance and more than a little insight they can tilt the odds of success strongly in their favour.

Some Factors for Increased Success
When examining the studies conducted on M&A success one of the most important distinctions that can be drawn between best and worst performances, is that the best deals are more often made in related fields. The worst acquisitions often occur in much less related fields, where the buyer has less market knowledge and expertise. The strategic decision to acquire in a totally new field can seriously effect your chance of success. In-depth market intelligence therefore, is vital.

Secondly, an opportunistic acquisition strategy, as opposed to a proactive approach, has been shown to yield a significantly lower success rate. The reasons behind the higher failure rate (63%) of the opportunistic approach are manifold. However, the problems can be tracked back to a lack of pre-acquisition planning during the early stages of the acquisition process and a lack of choice due, to a passive approach in the identification of a range of prospects.

I have had numerous conversations with senior executives who tell me that their strategic growth plan is via acquisition, yet almost proudly pronounce that their tactical plan is to be “OPPORTUNISTIC”, since they are regularly presented with opportunities from a variety of sources.

To me that makes as much sense as someone hanging around bars and clubs in an “opportunistic” attempt to try and pick-up their future wife (partner)…………………………………. Someone remind me again as to what the average divorce rates are in North America and Europe! Hmmm interesting!


  1. A thought provoking post that is so true. I have seen $M's wasted within my own company on acquisitions that were "half cocked" in their process by so called senior experienced executives

  2. They are not alone failure to reach acquisition objectives is commonplace. Failure rates of above 50% are avoidable but it requires better planning and knowledge. Some of the worst offenders you would expect to know better as they have acquired many times before. However, post acquisition learning especially when the acquisition has not reached expectations can be politically difficult and is often "overlooked" "Glossed over" of the goal posts are subtly changed. It reminds me of the set of rules in the book "Animal Farm" that change over night. Who wants to be seen as the exec who wasted $M's?

  3. I am always interested in the data behind studies of software M&A success vs failure rates, ECM or the broader software business. Seems like time horizon chosen and definition of 'success' are important elements. We are probably familiar with publicly traded, 'buy and strip' rollup players in licensed software driving profits through multiple acquisitions. Success to these CEOs is measured by one thing and one thing only...and it is not related to constituencies like customers and employees.

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  4. I can provide you with the data behind the figures. I have an article I wrote which I can email to you or anybody else that is interested. Your spot on about measuring the "Success Factor" as in all the different studies I researched the criteria varied. However, I think you will see from the information when I send it to you there is a acceptable variance and some common lessons that can be learned.

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