Mergers and acquisitions are not always successful and many factors are behind failure of mergers and acquisitions and here are some of them –
1. The key for any successful mergers and acquisitions is the price which is paid for acquiring the company for purchasing the other company. Hence if any company pays for acquisition more than which it is worth it will naturally result in failure of merger and acquisition.
2. When the company takes too much debt so as to acquire other company it will result in huge future interest payments and hence most of the earnings of the merged company goes towards the payment of such interest charges and hence it puts lots of pressure on the company resulting in company making loss or lower profit than before.
3. Another reason could be that employees of the company which is being taken over may not like to remain in the merged company because various reasons like the new management being not able to understand their needs and also lack of confidence in new management by the employees. This ultimately results in employees going out and creating a vacuum in the company because it is hard to replace experiences employees with others and hence a great operational difficulty arises for the merged company.
4. Sometimes regulatory authorities can delay the merger because various apprehensions like creation of monopoly, and other regulatory issues resulting in confusion all round whether merger will happen or not and which ultimately results in suppliers, employees as well as customers of the company going to other companies and hence again a big setback for the company which is taking over the another.
Hence from the above one can see that company should keep above points in mind before doing mergers and acquisitions in order to make it successful and not a failure.