The Strategy Skills Podcast: Strategy | Leadership | Critical Thinking | Problem-Solving

507: Decoding M&A: Why 70% of Deals Fail and the Scorecard for Predicting Success

Dec 9, 2024

Baruch Lev and Feng Gu, co-authors of The M&A Failure Trap, share their insights on why 70% of mergers fail. Lev, a leading authority in corporate finance, and Gu, an expert in corporate acquisitions, discuss the pitfalls of over-optimism and lack of due diligence in M&As. They introduce a unique scorecard that evaluates key success variables like deal size and employee dynamics. The conversation highlights the crucial need for strategic planning and accountability to avoid costly acquisition mistakes.

58:16

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Episode guests

Feng Gu

Baruch Lev

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Episode notes

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Quick takeaways

CEOs often exhibit overconfidence that drives them to pursue large acquisitions under investor pressure, frequently leading to significant financial losses.

Inadequate due diligence and flawed CEO incentive structures contribute heavily to the high failure rates of mergers and acquisitions.

Deep dives

CEO Overconfidence and Acquisitions

CEOs often display high levels of optimism, with 30% to 40% exhibiting overconfidence regarding their ability to successfully integrate acquired companies. This overconfidence leads them to pursue large acquisitions under pressure from investors and boards, believing that these acquisitions can remedy operational issues such as lagging sales or market share. Although some acquisitions may succeed, studies show that acquisitions frequently result in significant financial losses for the acquiring company, often described as the 'greatest value destruction' in corporate business. This high failure rate is exacerbated by the perception that acquisitions are a quick solution to broader strategic challenges.

Intro

3min

The Pitfalls of Mergers and Acquisitions

19min

Understanding Acquisition Success: Key Variables and the Scorecard

4min

Mergers and Acquisitions: Risks and Realities

14min

Navigating Employee Dynamics in M&A

15min

Revolutionizing M&A Insights: A New Analytical Approach

3min

Welcome to Strategy Skills episode 507, an interview with the authors of The M&A Failure Trap: Why Most Mergers and Acquisitions Fail and How the Few Succeed, Baruch Lev and Feng Gu.

In this episode, Baruch Lev and Feng Gu discuss the pitfalls of corporate acquisitions and the reasons why CEOs repeatedly make strategic errors that lead to costly mistakes. They argue that many acquisitions are driven by investor pressure and unrealistic expectations, with large deals often failing due to many factors including poor due diligence, lack of synergies, and talent retention challenges. Acquisitions should be a carefully considered last resort, not a knee-jerk strategic move.

Baruch Lev is a professor emeritus at NYU Stern School of Business, where he has taught and conducted research on mergers and acquisitions for decades. He worked formerly at UC Berkeley and the University of Chicago. His work has been widely cited in academic and professional circles (over 63,000 Google Scholar citations), and he is a leading authority on corporate finance and valuation.

Feng Gu is a professor of accounting at the University at Buffalo and has extensive experience in analyzing the financial aspects of corporate acquisitions. His research focuses on the economic consequences of corporate decisions and has been published in top-tier academic journals.

Get The M&A Failure Trap here: https://shorturl.at/YZydV

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