Study on abandoned mergers and acquisitions identifies areas for process improvement

BVWire–UKIssue #7-1
October 1, 2019

M&A valuations
mergers and acquisitions (M&A), private equity, synergy

Business valuers must recognise the risks associated with failed business deals. In fact, a new study from McKinsey confirms that one of 10 large merger and acquisition deals fails to close, often causing significant harm to both proposed buyers and sellers. The study, by Gerd Finck, Roerich Bansal, Marjan Firouzgar, and Dariush Bahreini, identifies disagreements on value and potential value creation as the main problem (42% of the failed deals were halted for this reason), followed by regulatory hurdles and political issues as the most common causes of abandoned mergers and acquisitions transactions. (The authors recommend approaches for deal transparency, mutual bargaining, and active political landscape monitoring as the best ways to minimise this risk factor.)

Other factors for deal failure are also familiar, ranging from activist investor opposition to corporate leaders second-guessing synergies.

The study analysed 265 cancelled deals. Among the findings that may help valuers understand M&A risk characteristics are the following:

  • Generally, the larger the transaction, the more likely it was to fail. Transactions greater than 10 billion euros failed twice as often as deals valued between 1 billion euros and 5 billion euros.
  • ‘Whenever possible, simpler structures for transactions should be favoured over more complex ones,’ the authors conclude, suggesting that one way to improve closing success was to work in all-cash or all-share terms.
  • Speed helps. Shorter closing cycles mean fewer abandoned transactions.
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