M&A: What If Finance Isn't Enough?

A reflection on what M&A failure rates might reveal about the way we think about mergers and acquisitions.

There is a paradox that has increasingly caught my attention as I have been studying mergers and acquisitions.

Over the past few decades, the discipline has become remarkably sophisticated. Valuation models have grown more advanced. Due diligence processes have become more comprehensive. Deal structures now allow for increasingly refined risk allocation between the parties. From a technical standpoint, M&A has reached a high level of maturity.

Yet the outcomes tell a very different story.

According to KPMG, 83% of M&A transactions fail to deliver sustained shareholder value. Other studies reach a similar conclusion, estimating that between 70% and 90% of acquisitions fail to generate the expected strategic or financial value.

This is neither a new nor an exceptional finding. It has persisted across economic cycles, industries, and geographies. Year after year, the same pattern emerges with remarkable consistency.

And that is precisely what I find intriguing.

If our tools continue to improve while our results remain largely unchanged, could it be that we are focusing our efforts on only part of the problem?

What M&A failures seem to have in common

When looking across the research on unsuccessful M&A transactions, one observation quickly stands out: the causes remain strikingly consistent.

Studies repeatedly highlight integration challenges, cultural incompatibilities, poorly designed post-merger governance, the loss of key talent, insufficient communication, or an acquisition strategy that lacked clarity from the outset.

Willis Towers Watson identifies culture as the primary integration challenge for nearly seven out of ten practitioners. Mercer reports that nearly half of the employees in acquired companies leave within the first year following closing, a turnover rate far above normal levels.

What strikes me is not only what these studies emphasize. It is also what they rarely mention.

Very few point to an incorrect discounted cash flow model. Few attribute failure to an inaccurate valuation multiple. Even fewer conclude that a single contractual clause explains why an acquisition ultimately underperformed.

None of this diminishes the importance of financial discipline. Poor valuation can undermine an investment before integration even begins. Inadequate due diligence can expose an acquirer to significant risks. Rigorous financial analysis remains an essential prerequisite for any serious transaction.

But an essential condition is not necessarily a sufficient one.

And perhaps that is where the real conversation begins.

When the strategy is right but the transformation fails

The acquisition of Sun Art by Alibaba offers an interesting illustration.

In 2020, Alibaba invested $3.6 billion to acquire a controlling stake in China's largest hypermarket operator. The strategic rationale was clear: combine Alibaba's digital ecosystem, data capabilities, and e-commerce expertise with a nationwide network of more than 500 physical stores.

On paper, the logic was compelling. The strategic vision was coherent. The financial resources were available.

Four years later, Alibaba divested its entire stake.

During that period, Sun Art experienced significant revenue declines, substantial financial losses, and a reduction in its store network. Subsequent analyses highlighted a central issue: despite the acquisition, the two organizations largely continued operating with separate logistics systems, supply chains, and operating models. The anticipated synergies never truly materialized.

This single case does not explain why M&A transactions fail.

However, it raises a question that is difficult to ignore.

Can value truly be created when a successful transaction is not followed by a successful transformation?

Three questions that deserve further exploration

The more I study M&A, the more I find that certain questions receive surprisingly little attention.

The first concerns the way we structure the discipline itself.

Traditionally, we distinguish between buy-side and sell-side. Two processes. Two professions. Two different perspectives.

But does this distinction really reflect how strategic decisions are made at the executive level? Before becoming either a buyer or a seller, a company faces a much more fundamental question: how should it reshape its portfolio to create greater value?

Perhaps acquiring and divesting are not two separate ways of thinking.

Perhaps they are simply two different responses to the same strategic diagnosis.

The second question concerns what we actually value when acquiring a company.

Financial models capture cash flows, tangible assets, projected synergies, and future growth.

Yet many acquisitions are ultimately driven by something far less tangible: people, culture, capabilities, innovation, customer relationships. A significant portion of what motivates an acquisition never appears on the balance sheet. Yet it is often precisely this value that disappears when integration is poorly managed.

The third question challenges how we frame M&A itself.

Do we still think of an acquisition as a transaction followed by an integration?

Or should we instead see it as a transformation in which the transaction is merely one milestone?

The distinction may appear subtle. It fundamentally changes how transactions are prepared, which capabilities are required, which metrics matter, and ultimately how success should be defined.

What this may imply

I do not believe finance is the problem. It is indispensable.

No serious transaction can be executed without robust valuation, rigorous risk analysis, and sound legal structuring.

What I do question is whether we sometimes give finance disproportionate attention compared with the factors that ultimately determine whether an acquisition succeeds several months or even years after closing.

The available evidence suggests that value creation also depends on the quality of the initial strategic rationale, post-merger governance, the ability to integrate two organizations effectively, retain key talent, build a shared culture, and successfully lead organizational change.

If that hypothesis holds true, then M&A may not simply be a financial discipline.

It may also, and perhaps above all, be a discipline of transformation.

The value of an acquisition is probably not created on the day the contract is signed.

It is built over the months and years that follow.

And perhaps that is where the real work of leadership truly begins.

This article is the first in a series exploring the strategic, organizational, and human dimensions of mergers and acquisitions.

Next article: Before Becoming a Buyer or a Seller, Every Company Is First and Foremost a Strategist.

If these topics resonate with you, I would be delighted to connect with executives, practitioners, investors, researchers, or students who share an interest in the future of M&A. I have also created a short survey for those who would like to follow this series, contribute to the discussion, or be notified of upcoming articles. M&A Survey

For those discovering my work for the first time, I also previously shared a synthesis following a course at CEIBS (Shanghai) on the non-financial dimensions of mergers and acquisitions. The article explores how strategy, negotiation, culture, and integration shape value creation far beyond the closing of a deal.

M&A Beyond Finance: 13 Lessons About Strategy, Negotiation, Culture, and Integration