Everyone thinks that at least 50% of M&A deals end in failure. But nobody really seems to care, as long as they believe that everyone else is working with the same odds.
This is not OK. Every M&A failure costs time and money, but more importantly, by chasing bad deals you are standing in the way of your own company's value-adding growth. Done properly, M&A can be a successful way to efficiently grow a business. Done poorly, it will destroy shareholder value while making your external advisors rich, and at the very least it will make you look foolish, and may even harm your career opportunities.
This at least 50% failure rule has allowed investment banks and M&A advisors to encourage any kind of deal—whether it is appropriate or not—for decades. After all, they get paid either way, so what do they care if the deal goes bust?
This is particularly true when you agree to pay external advisors a success-based fee, as this only encourages them to attempt any deal whatsoever, thereby continuing the high global M&A failure rate. Meanwhile, CEOs, CFOs, and small-business owners are left unable to reach their true potential. If we are going to reduce the M&A failure rate, then someone has to stop doing deals. And the deals they have to stop doing are the ones that will end in failure.
The truth is that M&A doesn't have to be this risky. The best M&A dealmakers in the world have achieved M&A success by following three rules: