Common Reasons for Acquisition Failure

There are 4 common reasons that result in acquisition failure. Here they are:

1. Integration difficulties. The corporate cultures at the two firms might be too different. There can be problems with developing and integrating financial and control systems. The status of the newly acquired firm's executives can be a challenge, and the loss of key personnel could weaken the acquired firm's capabilities and reduce its value.
   
   
2. Inadequate evaluation of the target or future partner. The firm did not do its homework properly in the due diligence process. It may overlook the tax consequences of the transaction, the differences in culture between the firms, and the actions necessary to meld the two workforces.
   
   
3. Large debt. If the firm incurs a large amount of debt in order to make the acquisition happen, the likelihood of bankruptcy is increased, the firm's credit rating may be downgraded which increases the interest costs, and it may preclude investments in important activities such as R&D, human resource training, or marketing.
   
   
4. Managers overly focused on execution. The managers may spend too much time and energy making the acquisition happen that they forget the firm's main objectives.