There is a little secret that many people don’t know about Mergers & Acquisitions: most fail. While there are numerous publicized failures like Daimler and Chrysler’s doomed alliance or AOL and Time Warner’s dysfunctional relationship, many merger failures are smaller in nature and thus go less noticed. It’s not that mergers completely destroy both companies, but it’s more that there is a steady, unexpected loss of value for the new combined entity. Specifically, past research on mergers has shown that they decrease the long term value of the new firm by as much as 10 percent in the five years following the merger. However, much about what causes this loss in value is unexplained by conventional theories.
[This research paper has been reproduced with permission of the authors, professors of IE Business School, Spain http://www.ie.edu/]
Great article! This is an important aspect of mergers that can significantly impact the long-term success of the integration. Thanks for the nice insights!
on Jan 10, 2012