The following article was written by Wharton management professor Emilie Feldman and Sriram Praveen Chunduru, Principal of Corporate Development at IBM. (Any views expressed in this article are the authors’ views and do not represent the views of IBM.)
Since 2000, cumulative global M&A has exceeded $57 trillion. Yet multiple studies have suggested that 70-90% of deals underperform expectations.
Recent cases demonstrate how preventable deal-stage errors destroy value. Bayer’s $63 billion acquisition of Monsanto in 2018 has erased over $50 billion in shareholder value, which can be attributed to inadequate due diligence. General Electric’s $10 billion purchase of Alstom’s power business in 2015 contributed to a $22 billion impairment three years later, undergirded by a strategic misjudgment betting on gas turbines as renewables’ costs plummeted. CEO Jeff Immelt later admitted, “If I had to do it over again, I wouldn’t do the Alstom deal.” The 2015 Kraft Heinz merger has generated over $28 billion in write-downs, with Warren Buffett acknowledging “we overpaid for Kraft.”
These failures involve identifiable mistakes across strategic assessment, target selection, due diligence, synergy evaluation, valuation, and integration — the six critical stages outlined below.
Stage 1: Strategic Mode Selection
The foundation of M&A success begins with choosing the right strategic approach. Too many executives default to acquisitions without evaluating alternatives, falling into familiar traps: acquisition default bias, pursuing targets that are “too cheap to resist” despite poor strategic fit, strategic obsession that ignores financial discipline, and integration blindness that underestimates the complexity of combining organizations.
Bank of America’s 2008 acquisition of Countrywide Financial exemplifies selecting the wrong mode at the wrong time. Initially valued around $4 billion, the deal was later associated with at least $17 billion in mortgage-related settlements plus additional legacy costs after the housing market collapsed. Quaker Oats’ mode selection error was different – buying Snapple for $1.7 billion in 1994 when a partnership or licensing arrangement might have tested the fit — leading to a sale three years later for $300 million. Microsoft’s $7.2 billion purchase of Nokia’s handset division in 2013-2014 showed strategic enthusiasm overriding financial discipline, resulting in a $7.6 billion impairment in 2015 as the mobile market evolved.
Stage 2: Target Selection
Once you’ve decided to buy, picking the right company becomes critical. Common mistakes include incomplete searches that miss the full universe of targets, letting bankers dictate the pipeline, being seduced by attractive pricing despite weak strategic fit, falling for compelling narratives while ignoring poor economics, and underweighting integration risks.
Google’s 2012 purchase of Motorola Mobility for $12.5 billion shows misclassification at the selection stage — treating what was essentially a patent-defense acquisition as a hardware platform play — then selling the handset business to Lenovo for $2.9 billion in 2014 while retaining the patents. Yahoo’s 2013 acquisition of Tumblr for $1.1 billion, later sold by Verizon to Automattic for roughly $3 million, illustrates the risks of overpaying for hyped assets without a clear monetization path or integration plan.
Stage 3: Due Diligence
Due diligence often becomes superficial, with teams accepting seller forecasts without verification, missing hidden liabilities like litigation or environmental risks, ignoring operational and IT risks including cybersecurity vulnerabilities, and neglecting cultural compatibility assessment.
HP’s $11 billion acquisition of Autonomy in 2011 demonstrates insufficient financial diligence, leading to an $8.8 billion write-down in 2012 after alleged accounting misrepresentations that deeper forensic work might have uncovered. Bayer’s $63 billion acquisition of Monsanto in 2018 shows inadequate legal and liability assessment — underestimating Roundup litigation risk led to multi-billion-dollar settlements and legal provisions exceeding $10 billion over subsequent years. Verizon’s 2017 Yahoo acquisition required a $350 million price reduction after discovering previously undisclosed data breaches during late-stage diligence, illustrating the cost of inadequate cybersecurity review.
The high failure rate [for M&A Deals] isn’t inevitable. It stems from predictable causes that can be systematically addressed through rigorous frameworks at every stage.
Stage 4: Synergy Assessment and Culture
Executives consistently overestimate synergies while underestimating cultural challenges. Culture is frequently cited in studies as a top driver of M&A underperformance. Common mistakes include synergy overoptimism, timeline unrealism, missing dis-synergies like customer losses and talent departure, and treating culture as an HR issue rather than a strategic imperative.
The 1998 Daimler-Chrysler merger exemplifies inadequate cultural assessment. The “merger of equals” struggled to reconcile German formality with American entrepreneurialism and was unwound less than a decade later when Daimler sold Chrysler to Cerberus in 2007 for $7.4 billion, far below the original deal value. Sprint’s 2005 Nextel acquisition for $35 billion shows both synergy overestimation and insufficient attention to cultural compatibility — incompatible networks and clashing organizational cultures contributed to a nearly $30 billion goodwill impairment in 2008. Microsoft’s 2007 aQuantive acquisition for $6.3 billion resulted in a $6.2 billion impairment in 2012, demonstrating overestimated revenue synergies in digital advertising that never materialized.
Stage 5: Bidding and Negotiation
Executives face systematic pressures leading to overpayment: entering bidding without predetermined maximum price, auction fever driving bids beyond rational limits, defaulting to all-cash transactions without exploring risk-sharing alternatives, and allowing seller-imposed deadlines to compromise judgment.
The 2007 battle for ABN AMRO, in which an RBS-led consortium outbid Barclays with an offer of about €70-71 billion, shows how bidding frenzies can leave the winner dangerously overexposed when conditions turn: RBS’s own chairman later called it “the wrong price, the wrong way to pay, at the wrong time and the wrong deal,” and the bank ultimately needed a £45 billion bailout. Tyson Foods’ 2014 acquisition of Hillshire Brands offers a more recent illustration: After a short but intense bidding war with Pilgrim’s Pride, Tyson’s winning $63-per-share all-cash bid — valuing Hillshire at roughly $8.5 billion, about a 70% premium to its pre-bid price — led analysts to warn that “bidding wars can sometimes leave casualties” and to estimate that Tyson destroyed around $2 billion of value versus a fair value closer to $47 per share, even after synergies.
Stage 6: Post-Merger Integration
Most integrations fail to deliver expected benefits due to delayed planning, weak governance with lack of dedicated senior leadership, abstract synergy targets that aren’t translated into actionable initiatives, and communication voids creating uncertainty.
AT&T’s 2015 acquisition of DirecTV for about $48 billion illustrates how weak integration planning and shifting industry dynamics can undermine the deal thesis — cord-cutting and execution challenges contributed to a $15.5 billion impairment of its premium TV unit and a later spin-off of DirecTV into a separate joint venture. The 2000 AOL-Time Warner merger shows how communication gaps and cultural conflicts during integration can erode value — the deal is widely viewed as unsuccessful due to strategic and cultural misalignment, with the companies ultimately separating.
The Bottom Line
M&A success requires systematic excellence across all six stages combined with the courage to walk away from deals that don’t meet disciplined criteria. The high failure rate isn’t inevitable. It stems from predictable causes that can be systematically addressed through rigorous frameworks at every stage. This discipline transforms M&A from a high-risk instrument into a powerful engine for value creation.
