Why Most Acquisitions Fail and How to Increase the Success Rate?

I hope everyone celebrating Thanksgiving had a great time with family and friends!

One of my executive education classes at Kellogg is entitled “Lessons from the Battlefield,” in which I discuss why (depending on the source) somewhere between 70% and 80% of acquisitions fail.

Here are my top seven reasons based on my many years of experience with acquisitions at Baxter and numerous boards:

1. Companies often don’t know what they’re really good at, and they assume they can manage anything.
2. Companies often don’t understand the economics involved in an acquisition and focus more on earnings per share than cash flow.
3. Companies convince themselves that an acquisition is strategic, and forget one of my favorite lines: “If it’s not economic, then by definition it won’t be strategic.”
4. Instead of using bankers exclusively to help source and finance deals, companies let the bankers tell them what the company is worth to the acquirer.
5. Companies often get emotional and sometimes look at acquisitions as a way of beating competition. I explain to my students that yes, you can always win the deal by paying more, but your shareholders will lose.
6. Companies often ignore the cultural implications of acquisitions. Even if the economics make sense, the success comes down to the people, and whether people from different companies and culture can work together.
7. Companies often fail to quickly integrate acquisitions, resulting in many of the best people leaving, given the amount of change and uncertainty in acquisitions.

Despite these seven issues, I do believe acquisitions can be successful by doing the inverse:

1. Really understand what your company is good at.
2. Take the time to understand the real economics of the transaction, not simply the accounting.
3. When people say the acquisition is “ very strategic,” make sure it truly is economic.
4. Use bankers where they can be most helpful — in sourcing deals, letting you know what may be available, and even what the seller is requesting in terms of price. However, only folks within your company who understand the industry dynamics should determine what the value is and how much to pay.
5. Never get emotional about acquisitions. When people say we absolutely have to have this specific company, the chance of overpaying is very high. Always be willing to walk if the economics don’t work.
6. Never forget: It really is all about the people. If the cultures don’t fit, the acquisition will never be successful.
7. Make sure the acquisition is integrated quickly so you don’t end up with the situation where even several years later parts of the company are still talking about pre-merger A and pre-merger B.

For more information on this topic, take a look at one of my recent Forbes articles entitled: “M&A is on the rise for 2026 – so are the risks of failure.”

Here is a link to the article, and a copy of the entire article is below.

M&A Is On The Rise For 2026—So Are The Risks Of Failure

With 2026 expected to be a strong year for M&A, according to Goldman Sachs, acquisitions will once again be on the rise. While many companies pursue acquisitions from time to time, some are attempting to accelerate their growth through multiple transactions. As McKinsey observes, those making “more than five deals per year grow at double the rate of companies that only selectively pursue M&A.”

Based on my more than four decades in leadership and having made or advised firms on more than a hundred acquisitions, I can attest that increasing the pace of M&A may jumpstart growth, but with that comes greater risks.

Studies reveal that an estimated 70-75% of acquisitions fail and, in some cases, the rate may be as high as 90%. Failure means that the acquired company did not deliver the intended return — in other words, the value it generated did not live up to expectations (or the price paid). These statistics, alone, should sound a warning bell for business leaders — not to avoid acquisitions but to increase the risk management for every deal they make.

One of the basic tenets of M&A is conducting due diligence to review a company’s operations, profitability, and cash flow to determine its suitability as an acquisition target and the appropriate price to pay for it. However, there are considerations that go beyond the balance sheet.

Although unsuccessful, that acquisition became a valuable lesson in M&A. Here are some takeaways:

1. Acquisitions create uncertainty. Acquisitions are a perfect scenario for encountering any number of unknowns. First, there are significant macro uncertainties that can affect the value of an acquisition, such as tariffs and their impact on global economic growth. Beyond the external factors, uncertainties also exist within the acquired company. For example, upon learning that their company is about to be acquired by another (and presumably larger) organization, people wonder what will happen to their jobs. Who will be their boss? Will they have to relocate? The more these uncertainties linger, the more people will worry about their future. As I tell my students in my MBA classes: Change + Uncertainty = Chaos. That’s why business leaders need to do everything possible to limit the uncertainty and avoid the chaos that can derail a promising acquisition.

• What are people going to do for all those months until they know the impact of the acquisition?
• How will they deal with the uncertainty around whether or not they will have a job?

My advice is to increase the frequency of communication: telling people what you know, what you don’t know as yet, and when you will get back to them with more answers. Without transparency and clarification, the best people will leave — and that’s exactly the talent that needs to be retained.

3. Prioritize retention of valued talent. When people with critical skills, expertise, and institutional knowledge depart, the acquired company suddenly doesn’t have the depth of talent, and its operations suffer. The opposite is also true. McKinsey calls it “acqui-hiring” — meaning a business is acquired largely for its talent, which provides immediate access to “a seasoned team with relevant capabilities who can hit the ground running.” With the right talent on board, time-to-market for new products can be accelerated. The lesson: understand the value of the talent within the acquired company and prioritize retention.

4. Encourage a healthy attitude toward failure. Of course, no one should go into an acquisition — or any business expansion or product rollout — expecting to fail. But some setbacks are natural. Minimizing their impact, while also maximizing the lessons learned, can foster a healthy environment that encourages greater innovation. However, if people sense there is an intolerance for failure, they will be reluctant to even suggest something new and different, let alone implement it. As a young leader, I learned this lesson from William Graham, the long-time CEO of Baxter International, where I spent more than two decades of my career. He acknowledged that failure was part of growth, but emphasized two important points: “First, when you fail, make sure you learn a lot, so you don’t repeat that failure. Second, when you fail, try to fail early.” There are many ways to apply this thinking, such as having month-to-month plans with specific objectives to be met. If after a few months an initiative is behind on its deliverables, the decision can be made to put an end to the project and deploy the capital elsewhere. Or, based on what’s been learned from initial failures, investment can be accelerated to complete the project successfully and ahead of schedule.

When companies are creating change, such as by making an acquisition, it’s imperative to take calculated risks in the context of the potential return. Beyond the numbers, there is an all-important human factor. By anticipating people’s questions, allaying their fears, and acknowledging their contribution to the company, leaders can reduce the uncertainties — and retain the talent they need for success.