Face the M&A truth: Mergers are glitter but grit is gold
Despite business buzzwords like ‘synergy,’ most mergers and acquisition (M&A) deals fail, scuttled by various factors. But M&As aren’t invariably doomed. Here’s how the playbook needs to be written.
The buzzwords ‘synergy’, ‘market expansion’ and ‘cost savings’ have long bewitched corporate boards, luring executives into the treacherous currents of mergers and acquisitions (M&As). From New York to Bangalore, leaders repeat the same tropes of talent acquisition, diversification, owning unique assets, entering high-growth sectors, etc, in the hope of achieving the magical alchemy that will transform two companies into a single powerful entity.
But the empirical record is unforgiving: most mergers fail to meet their objectives.
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Last year saw over $2.6 trillion deployed worldwide by companies chasing a mirage, but the hoped-for gains evaporated in many cases the moment the ink dried on these M&A deals.
The fatal flaw lies in leadership teams taking untested assumptions as immutable facts. Boards rubber-stamp plans presented by the executive team and when headlines hinge on the deal’s success, any hint of course correction is resisted. Sunk-cost thinking and a ‘commitment escalation’ bias tend to harden the resolve to press forth even in the face of hazard signals.
As time passes, the window for latent risks—clashing IT architectures, cultural misalignments, fractured supply-chains, etc—balloon, revealing complexities no spreadsheet could have projected.
The recent union of US-based Dick’s Sporting Goods with Foot Locker, valued at $2.4 billion, shone bright on paper: a suburban-leaning ‘house of sports’ popular with family shoppers had merged with an urban-centric sneaker specialist courting aspirational youth. It was meant to amplify negotiating leverage with Nike and gain a gateway to foreign markets. The stock market’s verdict? Foot Locker’s shares soared 85% while Dick’s tumbled 14%, a signal that investors believed the acquirer had overpaid for a turnaround riddled with unseen costs.
This embodies the integration trap: superficial similarities mask profound differences. Foot Locker’s 2,400-store empire spans 20 countries, but it has shuttered hundreds since 2023 amid a mall-retail slump. Dick’s was not merely buying real estate, but inheriting a beleaguered retail network in need of format overhauls, a loyalty-programme rejig, talent redevelopment and digital-platform realignment. Not easy.
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Boards frequently assume that category experience in one firm transfers seamlessly to another, wilfully ignoring divergent IT stacks, real-estate footprints and, critically, organizational DNA.
‘Synergy’ is the incantation that summons boards into action, but this is a speculative projection of behavioural change across two complex systems. Realizing even modest cost savings calls for consolidating procurement, merging software platforms and aligning vendor contracts; all these are subject to the push and pull of local allegiances, regulatory boundaries and political currents.
Academic research lays bare the truth: 83% of deals fail to boost shareholder returns, scuttled by mismanaged brands, mismatched strategies, cultural friction and overstretched managerial capacity. Flawless integration is rare.
The corporate graveyard is strewn with M&A hubris. Microsoft’s $7.2 billion dalliance with Nokia’s phone business in 2014 resulted in massive write-downs and layoffs. The AOL–Time Warner marriage of 2000, once valued at $165 billion, unravelled under the weight of incompatible cultures and evaporating value.
AT&T’s acquisition of Time Warner in 2018, pitched as a defining moment for content synergy, faltered amid cord-cutting trends and the need to invest in fresh content. Google’s $12.5 billion purchase of Motorola Mobility in 2011 yielded no enduring hardware foothold; three years later, Motorola was sold to Lenovo for $2.9 billion.
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Why do boards persist in these strategic follies? Overconfidence bias looms large. Acquisitions offer hidden ‘tenure insurance’ for CEOs because a high-visibility coup can overshadow current performance. Under investor pressure, M&As are touted as revenue multipliers. Also, incentives are badly misaligned: executive compensation goes by market cap more than sustainable value creation.
The M&A failure record demands a radical reframe that treats uncertainty not as an obstacle but as a design constraint. Here’s what should be done:
One, preserve optionality over integration by structuring acquisitions in staged commitments (such as pilot alliances) that allow incremental learning and course correction.
Two, account for probable failure by calibrating purchase prices to downside scenarios rather than best-case projections.
Three, acquire capabilities, not scale, focusing on distinctive platforms or talent (à la Google’s acquisition of YouTube or Facebook’s of Instagram) and granting them autonomy.
Four, build integration muscle proactively through smaller bolt-on deals, training cross-functional teams, refining playbooks and mastering change-management before a merger.
Five, realign incentives for long-term value creation, tying executive compensation to post-deal performance metrics.
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Real resilience springs not from flashy deals, but from cultivating purposeful customer intimacy, operational excellence and a culture of iterative learning. True boldness lies in rejecting the merger mirage. The question isn’t which megadeal will defy the odds, but when leaders will note that while ‘mergers are glitter, grit is gold.’
The authors are, respectively, professor at Columbia Business School and founder of Valize; and co-founder of the non-profit Medici Institute for Innovation. X: @MuneerMuh.
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