Failures in Mergers and Acquisitions: the Daimler Chrysler case

n any real-world case, difficulties in building alliances are a consequence of many elements. These include business aspects, context factors, personal factors, interpersonal dynamics and culture (Hofstede 2005).
King et al (2004) argued that, despite decades of research, what really impacts the financial performance of firms engaging in M&A activity remains largely unexplained. However, we will try to give some answers.
According to Schuler and Jackson (2001) the typical and common reasons for failure include:

. unrealistic expectations;

. hastily constructed strategy, poor planning

. loss of talent

. transition management fails

. underestimation of transition costs

. financial decline

. focus of executives distracted from the core business.

. management hubris (Seth, Song and Pettit 2000)

An examination of the returns to acquiring firm shareholders reveals that during the last 30 years, acquisitions continued to produce almost the same negative average returns. Cartwright and Schoenberg (2006) explain that with three reasons: executives are undertaking acquisitions driven by non-value maximizing motives, the prescriptions from the academic research have not reached the practitioner community and the research to date is incomplete in some way.
Bruner (2005) has highlighted six scenarios that can be at the base of a possible failure:

. the business and the deal were complicated

. the flexibility was at a minimum

. management made wrong choices (deliberately or not)

. overoptimism, overconfidence or hubris

. business environment was not as usual (context effect)

. the operational team broke down

. winner's curse

Conclusively, Bruner stated that a company is more likely to fail in M&A when it enters a fundamentally unprofitable industry, it steps far away from what it knows (focus and relatedness pay better), the economic benefits of the deal are improbable or the organization is not creative in deal structuring.