Face the M&A truth: Mergers are glitter, but grit is gold

The buzzwords 'synergy', 'market expansion', and 'cost savings' have long bewitched corporate boards, luring executives into the treacherous currents of mergers and acquisitions (M&As). From New York to Bangalore, leaders repeat the same tropes of talent acquisition, diversification, owning unique assets, entering high-growth sectors, etc., in the hope of achieving the magical alchemy that will transform two companies into a single powerful entity. But the empirical record is unforgiving: most mergers fail to meet their objectives.

- Rita McGrath & M. Muneer

Last year saw over $2.6 trillion deployed worldwide by companies chasing a mirage, but the hoped-for gains evaporated in many cases the moment the ink dried on these M&A deals. The fatal flaw lies in leadership teams taking untested assumptions as immutable facts. Boards rubber-stamp plans presented by the executive team, and when headlines hinge on the deal's success, any hint of course correction is resisted. Sunk-cost thinking and a 'commitment escalation' bias tend to harden the resolve to press forth even in the face of hazard signals. As time passes, the window for latent risks—clashing IT architectures, cultural misalignments, fractured supply chains, etc.—balloon, revealing complexities no spreadsheet could have projected.

The recent union of US-based Dick's Sporting Goods with Foot Locker, valued at $2.4 billion, shone bright on paper: a suburban-leaning 'house of sports' popular with family shoppers had merged with an urban-centric sneaker specialist courting aspirational youth. It was meant to amplify negotiating leverage with Nike and gain a gateway to foreign markets. The stock market's verdict? Foot Locker's shares soared 85% while Dick's tumbled 14%, a signal that investors believed the acquirer had overpaid for a turnaround riddled with unseen costs.