History has proved to be a rather critical judge of many mergers and acquisitions during the second half of the twentieth century. In the 1960s and 1970s conglomerate organisations were in fashion. It was assumed that management and commercial success in one type of industry could be easily be transferred to other unrelated industries. Regardless of the fact that there were few or no synergies apparent between the merged or acquired companies there was an enthusiasm for companies to come together and hopefully pool resources and achieve economies of scale either in manufacturing, distribution or marketing. Empirical evidence has shown that many of these acquisitions/mergers did not achieve their objectives. Returns on investment fell as did many share prices. There was a reaction to this and during the 1980s there was a reverse process. Many companies divested themselves of some of their expensive acquisitions.
However, at the end of the 1990s (and still continuing) there has been a renewed growth in merger and acquisition activity. However, currently the focus is on related industries. There is an awareness that different industries may need different skills and resources. Concentration is now on building relationships with firms operating in similar or related technologies. Acquisition for the sake of diversification is not a major factor in these moves. These linkages vary from strategic alliances, joint ventures to full-scale integration with mergers or acquisitions. These moves are well illustrated with the current activities world-wide within the financial, retail and pharmaceutical sectors. Nevertheless, there is still some evidence which suggests that these strategies do not always achieve the objectives which were hoped for.
Possible reasons for mergers and acquisitions failing to fulfil their potential
There are many obvious reasons to explain why merged organisations fail. Lack of knowledge or experience in the relevant environments is a common factor. There are also examples where inadequate financial controls have been in place. However, a number of factors which can commonly be embraced within the word ‘culture’ have been seen as reasons why mergers or acquisitions have failed to live up to expectations. Some can be summarised as follows: