Contrary to popular belief, serial acquirers create less value on average than companies that rarely do M&A, according to a BCG analysis of more than 26,000 deals. But the top serial acquirers generate superior value by focusing on the right targets at the right time. Contributors: Jens Kengelbach, Dominic C. Klemmer, Dr. Bernhard Schwetzler, Dr. Marco O. Sperling, Alexander Roos.

While some M&A deals turn out to be great successes, it’s no surprise that a lot of mergers and acquisitions fail. The obvious factors explaining the failures include culture clashes or founders leaving—taking the DNA with them in the process.

But M&A is more art than science, and the reasons why so many deals fail to deliver on their 1+1=3 promise are complex. Here are some.

When one company merges with another, common business wisdom suggests that the newly combined firm has a lower risk of going into default, because the transaction gives the merged corporation greater diversity than the two individual participants. But according to a study by Craig Furfine, a clinical professor of finance at the Kellogg School of Management, and Richard Rosen, of the Federal Reserve Bank of Chicago, that common wisdom is wrong. “On average,” Furfine says, “acquiring firms become riskier post-merger.”

“The natural intuition that many people would have is that when you combine two firms, the differences between the two firms would tend to make the combined firm safer through diversification,” Furfine explains. “This is not what happens in practice.”

The study goes beyond that counterintuitive conclusion. It also highlights possible reasons for it. “Our evidence suggests that managerial motivations may play an important role,” the two researchers write. “[T]he increased default risk may arise from aggressive managerial actions affecting risk enough to outweigh the strong risk-reducing asset diversification expected from a typical merger.”

Companies advance myriad strategies for creating value with acquisitions—but only a handful are likely to do so.

Due diligence cannot always be perfect. However, from a legal perspective, the point is to make a good faith effort to conduct due diligence, within the limits of time and funding, and in consideration of what matters most—the long-term financial health of the surviving company and its stakeholders. This author has written a comprehensive primer on the subject.

Editor's Note: Very US-centric but still of general value to those of you in other countries.

Successful integration - the key to avoiding the risks of a merger or acquisition and to realizing its potential value -is always a challenge. And it is complicated by the simple fact that no two deals should be integrated in the same way, with the same priorities, or under exactly the same timetable. But 10 essential guidelines can make the task far more manageable and lead to the right outcome:
1. Follow the money
2. Tailor your actions to the nature of the deal
3. Resolve the power and people issues quickly
4. Start integration when you announce the deal
5. Manage the integration through a "Decision Drumbeat"
6. Handpick the leaders of the integration team
7. Commit to one culture
8. Win hearts and minds
9. Maintain momentum in the base business of both companies-and monitor their performance closely
10. Invest to build a repeatable integration model

Bringing together groups of previously unacquainted employees operating in their own distinct cultures is challenging, and most organizations going through a merger or acquisition recognize and try to address these challenges. But often people and culture issues are treated too abstractly, too informally or too late in the process.

According to a new Towers Watson pulse survey, organizations going through an M&A have a greater chance of meeting the goals for their deal if they keep workforce issues top of mind, and address those issues thoughtfully and consistently throughout the entire transition process.

Purchasing assets in default or under bankruptcy protection can be an attractive path to growth. Often significantly discounted, they can represent the deal of a lifetime. But they also present a unique set of hazards.

A lot of academic research shows that the odds of making an acquisition work are not high. Careful thinking about what it means for an acquisition to succeed, coupled with an analysis of why deals fail, can lead to some practical advice for managers, thus helping them to develop a more refined view. More specifically, in order for acquisitions to pay off, they ought to pass four tests.

Culture is a broad, woolly concept, which often means different things to different people. And, unsurprisingly, culture clashes have been used to describe all sorts of organizational conflicts that occur following an acquisition. Therefore we launched a study to understand which specific types of cultural compatibility impact the subsequent performance of a cross-border acquisition. Six dimensions of cultural difference were identified and investigated. The six dimensions were concerned with differences between the management styles of the bidder and target in terms of: organisational formality, extent of participation in decision-making, attitude towards risk, systemisation of decision-making, managerial self-reliance and attitudes towards funding and gearing. The key dimension that had a measurable effect on acquisition performance was risk orientation.

As companies gear up for growth, they are seeking targets that can help their companies innovate.

Why successful M&A now depends on getting your ducks in a row as early as possible.

In my experience with global mergers, creating stable working environments and certainty about the immediate future is critical to re-establishing commitment. Looking at the increasing M&A activity in the private and public sectors, and thinking about the possibilities for the future, leads me to conclude that at no time in the history of management has the role of the line manager been so critical to successful performance.

Companies advance myriad strategies for creating value with acquisitions—but only a handful are likely to do so.

Cross-border mergers and acquisitions (M&A) are on the increase in virtually every sector across the globe. Although such transactions offer significant advantages, they also pose several postmerger integration (PMI) challenges, ranging from difficulties in obtaining reliable, accurate information about a target to cultural, political, and regulatory hurdles. This Focus discusses five major challenges and suggests various solutions, drawing on the experiences of companies that have successfully executed cross-border M&A.

The numbers don’t lie. Many top corporate managers are faced with the challenge of a post merger integration (PMI) at least once in their career. And empirical studies indicate that one of every two PMI efforts fares poorly.1 These statistics are particularly telling given that mergers and acquisitions have been a staple management instrument for almost a century now and that there has been growing professionalism in corporate M&A efforts over the last decade: practically every transaction is accompanied by due diligence, with the increased involvement of external specialists such as lawyers, auditors, tax consultants and investment bankers. Yet challenges with post merger integration are consistently high and the resultant threat to a company’s performance perhaps higher than it needs to be.

There are no hard and fast rules to ensure that a given merger will result in corporate wedded bliss. But we have found that quantitative analysis — something PMI managers have largely overlooked — can evoke both surprising questions and even more revelatory answers. Certain post merger integration scenarios, which we describe below, can create very difficult starting points for the companies and the managers involved. If a company faces one of the less favorable scenarios, it becomes doubly important to assess the likely causes of difficulty and to address these proactively and thoroughly.

In an empirical examination of one of the world’s largest PMI databases by the authors and the University of Muenster in Germany, a set of risk factors have emerged that are statistically significant — as opposed to just hearsay — in influencing PMI success, as defined by criteria described below. These factors also can be used to help determine the types of “risk profiles” that pertain to a merger, each profile having a unique statistical likelihood even before any integration measures have been implemented. Identifying the risk profiles before closing a deal is thus crucial.

Extrapolating from our quantitative analysis, certain PMI myths emerged that can influence both the effectiveness of the PMI process and the comparative difficulty in realizing the value of the merger – proposed or imminent. Using statistical analysis in an effort to minimize risks and discard outdated notions can help an organization stack their odds in favor of a more successful post merger integration.

This collection of articles explores many of the common people-related integration challenges organizations are likely to face during an M&A transaction, and offers recommendations to help executive leadership get it right for Day One and beyond. There are five sections:

Section 1: Due Diligence
Section 2: Integration Management
Section 3: Integration
Section 4: Post-Merger Integration
Section 5: Divestiture

Companies can seize the opportunity in mergers by involving employees and customers in the integration process, retaining critical staff, generating momentum by quickly winning key accounts, and serving the right customers in the right way.

This white paper explores what it means to build an integrated culture and effective leadership team that supports your merger or acquisition's strategic priorities.

In today’s economy, it is easy for managers to lose focus during the risky merger integration process. In fact, the chances are that one in two integrations will fail. Based on research, Accenture has identified seven catalysts that can help managers integrate an acquisition successfully, positioning their companies for financial stability now and high performance when the upturn comes.

M&A is a powerful instrument that can be used to gain access to complementary technology, channels and other critical assets without the risks or travails of organic growth. The downside is that acquisitions often result in product complexity. Successfully managing the complexity of a newly combined product portfolio can capture value, smooth the overall merger process-and deliver the full promise of M&A.

As the economic screws tighten, acquirers are under mounting pressure to realize synergies from their targets as quickly as possible. BCG’s series of Focus Reports on postmerger integration (PMI) has already covered many of the keys to success but there are several special issues that demand careful strategic consideration. The third Focus Report in our series on PMI addresses four of these issues including carve-outs, unionization, cross-border mergers and acquisitions in rapidly developing economies (RDEs), and customer-focused deals.

Accenture High Performance Business research has found that high-performance businesses can use an economic downturn to improve their competitive position. Building a merger and acquisition (M&A) capability—with platforms and processes that span every stage of the deal life cycle—can ensure that a company can take advantage of M&A opportunities as they arise, thus positioning itself to achieve high performance when conditions improve.

The biggest challenge in creating value from cross-border mergers and acquisitions (M&A) in rapidly developing economies (RDEs) is not extracting synergies, but understanding the full spectrum of risks before the deal is closed. Based on a survey of executives with extensive experience in M&A in RDEs, this focus highlights the four main drivers of these risks and how to minimize and manage them.

Acquirers often squander value in mergers by treating integration of business functions as a mechanical, cost-saving exercise – overlooking valuable revenue synergies and value generating activities. By thinking more laterally and approaching PMI as an opportunity to rethink how functions can enhance value, acquirers can secure superior long-term growth. This Focus Report, second in our series on PMI, describes how this approach can be applied to five core functions: information technology; research and development; procurement; production networks; and sales and marketing.