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Mergers and Acquisitions Viewpoints

Ten Ways to Beat the Odds in M&A

by James E. Schrager

This Chapter Covers

  • Most mergers fail.

  • Yet you can increase the odds of success.

  • Ten keys to better mergers.

  • How eBay won one and lost one.

  • How Newell Rubbermaid won many and lost one.

  • Two tricks from a very successful serial acquirer.


Very few things get the animal juices flowing quicker than buying another company. The goal is all about growth, and everyone knows that the right acquisitions can supercharge your game plan. You’ve read about it, you’ve seen it, you’ve heard about the boost that great mergers and acquisitions (M&A) can bring. Yet, in the distant reaches of your memory, you also see the shadows of the HP–Compaq merger, the GM purchase of Hummer (or Saab), the near-complete destruction wrought by Daimler merging with Chrysler, or the wholesale disaster known as AOL–Time Warner. These are troubling reminders of a few of the more manic decisions that have been made by top managers when reaching for the next rung on the ladder. But how to combat the “fog of war” when in the kill zone?

One of the best things to emerge from the cognitive revolution of the past decades is a deceptively simple rule of thumb prescribed by Daniel Kahneman, the second scholar to win a Nobel prize in decision science (the first was Herbert Simon, of whom more later). Kahneman admonishes all decision-makers to start with the “base rate” for success and failure in their task, just to have a sense of what one is up against. This is a tremendously facile approach, yet the numbers almost always astonish those making important decisions. This alone is a strong indicator of how we get can carried away by our own enthusiasm even earlier than we imagine.

The Base Rate

In the context of the acquisition game, the base rate is the percentage of acquisitions that fail to enhance shareholder value. This failure rate is variously reported by different groups over different times frames as 70% (Harding and Rovit, 2004 (Bain & Company)), 90% (Dion et al., 2007 (Hay Group/La Sorbonne)), 83% (KPMG, 1999), with A. T. Kearney reporting total returns to M&A were negative.

Allow me to ask a silly question: would you enroll in a university course where the vast majority of students were guaranteed to flunk? Would you step on an airplane that had a 10% chance of reaching its destination safely? Would you allow your daughter to drive a car with a known catastrophic failure rate of the braking system of 70%? Yet many management teams engage in this same behavior, probably without thinking that any of these statistics apply to them. Some teams beat the odds. The question is, can you?

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Further reading


  • Bruner, Robert F. Deals from Hell: M&A Lessons that Rise Above the Ashes. Hoboken, NJ: Wiley, 2005.
  • Harding, David, and Sam Rovit. Mastering the Merger: Four Critical Decisions That Make or Break the Deal. Boston, MA: Harvard Business School Press, 2004.


  • Dion, Claude, Deborah Allday, Caroline Lafforet, David Derain, and Guarav Lahiri. “Dangerous liaisons: Mergers and acquisitions: the integration game.” Hay Group/La Sorbonne, October 2007. Online:
  • KPMG. “Unlocking shareholder value: The keys to success. Mergers and acquisitions: A global research report.” KPMG, 1999. Online:
  • Schrager, James E. “Online Extra: DaimlerChrysler: Divorce, German Style?” BusinessWeek (February 6, 2014). Online:
  • Smithee, Allan B. “Down and Dirty Due Diligence.” Journal of Private Equity 1:3 (spring 1998): 6-12
  • Smithee, Allan B. “Down and Dirty Due Diligence Part II.” Journal of Private Equity 4:3 (summer 2001): 7-14


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