Several Reasons for Organizations Performing M&A Deals

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The Question that is mostly asked concerning mergers and acquisition since decades is why so many of these transactions fail to deliver the expected performance. Estimates are showing, that 50 percent to two thirds of these transactions fail (Gilkey 1991, p.1). As Cartwright and Schoenberg (2006, p. 1) found out during their research, M&A deals are considered as being one of the most popular form of corporate development. According to them, 30,000 M&A´s where conducted in 2004, which equals to one deal every 18 minutes. The total value of these transactions is reaching up to $1.900 billion, which is more than the GDP of several large countries.

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First of all, in order to introduce into the topic, several reasons for organizations performing such cross border M&A deals have to be understood. One factor, that is often considered in this regard as the main driver for companies merging together with foreign partners is the ongoing process of globalization. Scholte (2006, p. 1-3) claims globalization as being one of the main topics that defines our contemporary society these days. Along with this ongoing process, organizations are forced to expand their boundaries by merging together with other market participants in order to be able to serve customers from all over the world.

Apart from the factor of globalization there are several other reasons for contributing M&A deals. One that finds a lot of attention is the drive for achieving economies of scale. As Husan (1997, p. 38) summarizes, Economies of scale are still considered as one of the determining factors, that lead to a cost efficient production. He claims that without exploiting economies of scale, a globally competitive production level cannot be reached. The most famous historic example for the benefit coming from economies of scale can be found in the production of Ford´s model T – when a cost reduction of 50% was achieved due to the use of EOS along with a rapid increase in scale (Maxcy & Silberston, 1959, p. 78).

Another reason that is considered by a lot of organizations these days, are strategic and operational synergies. According to Bititci et al., (2007, p 2-3) when merging with companies that are following similar strategies or acting on similar strategic base, synergy effects can be achieved, which means that both organizational structures are benefiting from each other. As Nodolska and Barkema (2007, p. 7) summarize, acquiring other companies can help to increase market share and increase shareholders value.

The last reason that has to be mentioned and is most relevant with regard to the research objective of this paper, is the access to new capabilities and knowledge that people from different cultural backgrounds can bring into the company. Coming back to the question of why such a high percentage of M&A deals fail, there is a lot of research that considers cultural disparity in M&A deals as one of the main reasons for the failure. Chakrabarti, Gupta-Mukherjee and Jayaraman (2009, p. 216) claim, that cultural difference between two merging companies is still considered by most experts as the main reason for M&A´s, failing to deliver the expected performance. They mention that culture plays an important role in determining the success of these deals in the long run. But is this negative correlation between cultural diversity and the success of M&A deals still valid? Or are there ways in which it can even positively contribute to the performance of those deals?

For example, Bijlsma‐Frankema (2001, p. 197) points out, that too much cultural fit between two partners can reduce the synergy effects (mentioned above), that can be expected from the acquisition. He points out, that for the acquirer, taking the risk and managing the trouble might not be worth buying a company with capabilities and resources which exist in the company already or at least in similar form. In order to sum the two different opinions and lead over into the problem which this paper is trying to clarify “it is fair to say that the effects of culture on the prospects of M&A success are murky” (Stahl & Voigt, 2008, p. 7).

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