Why Such a High Rate of Failure in Cross-Border M&As? – Lina Chaoui

Why Such a High Rate of Failure in Cross-Border M&As? – Lina Chaoui

LL.M. in International Business Law – Panthéon-Assas Université International Singapore | Master’s Student in Droit des Affaires et Fiscalité – Université Internationale de Casablanca

Abstract

In recent years, many companies have turned to cross-border mergers and acquisitions as a way to grow beyond their initial markets. These deals are often motivated by the chance to enter new regions, lower operating costs, or gain access to new technologies. Despite their strategic appeal, a large number of these M&As are not fruitful due to specific obstacles in the international context. Through numerous studies, it has been shown that more than half of these mergers fail to meet their original goals. Furthermore, the number of failed M&As is greater when the companies involved are from different countries, as the challenges are even greater. This study highlights three prominent factors: cultural misunderstandings, legal and regulatory differences, and mismatched financial expectations, which are factors that persist due to inadequate pre-merger integration planning. Post-examination, it appears that the success of cross-border M&A relies on rigorous prior anticipation of the cultural, legal/regulatory, and financial aspects, as well as enhanced strategic integration planning.

Introduction

The notoriety of Mergers and Acquisitions relies on their promise of efficiency and effectiveness. Theoretically, it is unarguably the most appealing transaction to be considered for businesses to develop and grow. On one hand, companies can merge and join forces like allies in a war to battle the ongoing fast growth of the markets to ensure a stronger stand in it. On the other hand, an acquisition facilitates a company’s growth by providing immediate access to new markets, resources, and technologies, while also potentially enhancing competitive advantage and operational efficiency. M&A, whether international or national, both come with the promise of a strategic expansion, increased market share, and enhanced operational synergies, but also entail significant risks and integration challenges.

Part I – Theoretical Framework and Comparative Evaluation of Cross-Border M&As

A. Overview of Cross-Border M&As

Cross-border M&As occur when companies from different countries join forces, either by merging or through the transfer of ownership of one company to another. These transactions have become more common over the past few decades, mostly due to globalization, fewer trade barriers, and companies wanting to reach markets outside their home countries. The usual reasons behind them include expanding to new customers, getting access to new technology, spreading risk, and cutting costs through larger-scale operations. Still, international mergers are often more unpredictable than domestic ones. Businesses have to deal with different legal systems, unfamiliar regulations, cultural differences, and varying ways of running things day to day.

When compared to deals within the same country, cross-border mergers are much more likely to fail. Studies show that more than half of them don’t end up reaching the goals they set out to achieve^[1]. Much of this comes down to problems that only show up in international settings, and those will be looked at more closely in the next sections. These advantages, however, are often undermined by unique challenges that distinguish international M&As from domestic ones, as discussed below.

B. Cross-Border vs. Domestic M&As

Mergers and acquisitions within one country already come with their own risks. Companies have to figure out how to combine their operations and work styles, which is not always easy even when they share the same language, culture, and laws. However, having these things in common makes it easier to predict how things will go after the deal.

When companies from different countries merge or one acquires the ownership of the other, it becomes more complicated. There are a lot more rules to follow, different jurisdictions and legal requirements that can either differ, contradict, or overlap. Disparities in taxes, employment laws, and corporate governance practices can all vary, which can lead to unexpected slowdown in the transaction process or cause unexpected hazards. Additionally, different ways of handling these transactions and cultural habits can make it harder for people to work together smoothly.

One big challenge is the integration part, the time when the companies start working as one. This is often the intricate part of any merger. According to a McKinsey report, many transactions fall apart because of problems at this stage of the M&A^[2]. When the companies are in different countries, integration problems can get worse due to unprecedented events and unforeseen external circumstances, such as time differences, language issues, and extra rules from foreign jurisdictions. Hence, these variables further accentuate pressure, and thus the transaction becomes less likely to succeed.

While cross-border mergers can open up new opportunities, they also bring more risks than deals within a single country. Without careful planning and attention to these differences, many international deals struggle to meet their goals. These added layers of complexity increase the risk of failure when firms do not adequately prepare for the post-deal phase.

Part II – Critical Challenges and Strategic Approaches in Cross-Border M&As

A. Key Causes of Failure in Cross-Border M&As

One of the leading reasons for the frequent failure of cross-border mergers and acquisitions is cultural incompatibility^[3]. This occurs when companies from different countries attempt to merge; they often carry distinct national values, ways of doing business, and leadership styles. These differences can manifest in everything from decision-making hierarchies to employee communication norms. On both sides, the cultural differences may cause misunderstandings, poor communication, and irrational expectations. A well-documented case of cultural incompatibility is the failed merger between Daimler-Benz and Chrysler. For instance, the 1998 merger of Daimler-Benz and Chrysler is a great example, as both companies have different corporate cultures^[4]. Due to different corporate cultures, Chrysler’s more informal and decentralized American corporate culture did not integrate well with Daimler’s formal and structured German corporate culture. Due to these differences leading to friction between leadership teams, it weakened trust and eventually contributed to the breakdown of the merger. One can see that without careful planning to address cultural integration, even deals with strong business logic can falter, especially when morale drops and experienced employees choose to leave.

Beyond cultural issues, legal and regulatory complications often become major obstacles in international M&A deals. Each and every country has its own legal rules and policies, including those related to competition, ownership limits, public disclosures, and corporate governance. Navigating legal differences can slow down approvals or even lead to deals being blocked altogether. For instance, in 2018, the U.S. government stopped Broadcom from acquiring Qualcomm on national security grounds. Even though Broadcom was willing to restructure its operations and offer a competitive price, the deal was rejected by the Committee on Foreign Investment in the United States^[5]. This case demonstrates that national and political considerations may overpower business concerns when foreign ownership is at stake.

Given the differences in accounting rules, tax laws, and exchange rate swings, financial challenges can greatly increase the risk of cross-border transactions, and evaluating a company globally is often more challenging in a cross-border context. Hence, companies frequently overpay as a result of pressure from competing bidders or an overestimation of an anticipated alliance. One perfect illustration is the 2007 acquisition of ABN AMRO by a group of European banks, where the purchasers overestimated the impact of the approaching worldwide financial crisis as well as the actual value of the bank^[6]. Also, they neglected to create a strong strategy for combining their activities following the purchase. Significant financial damage followed from this, and occasionally, the institutions engaged collapsed.

Taken together, these cases highlight how highly vulnerable cross-border M&As are to a range of hazards, even if they can provide strategic benefits. Success in this area requires not only strong commercial reasoning but also a deep understanding of cultural, legal, and financial dynamics, and a willingness to address them with careful, early planning.

B. Strategies to Improve Success Rates in Cross-Border M&As

Considering how often cross-border M&As run into trouble, companies need to take a more grounded and strategic approach if they want a shot at making them work. One of the big variables that often gets overlooked is culture. It shouldn’t just be something to think about after the deal’s signed; it needs to be front and center from the beginning. This entails a comprehensive understanding of the target company’s operational structure, core values, and leadership dynamics. Some of the more successful mergers tend to involve leadership teams that mix people from both sides, create space for honest conversations with employees, and plan for cultural integration rather than hoping it works itself out. There’s research by Stahl and Voigt that backs this up; they found that companies treating culture like an asset instead of just another hurdle tend to do better once the merger is done^[7].

Regulatory planning is just as important. Getting in touch with local authorities early on and keeping that conversation going throughout the process can make a huge difference. Otherwise, you might end up hitting roadblocks you didn’t see coming. Having legal advisors who really know the rules in each country is pretty much essential, especially when it comes to things like antitrust laws, foreign investment rules, or industry-specific regulations. A good example here is when Anheuser-Busch InBev bought SABMiller^[8]. They navigated the regulatory requirements strategically and worked closely with different antitrust agencies across numerous countries, and that played a big part in getting the deal through.

Then there’s the financial side, which can’t be overstated; it needs to analyze the numbers but also take into account things like currency risk, taxes, and different accounting standards. One of the most common ways these transactions fall apart is simply by overpaying, sometimes because of overly optimistic synergy forecasts or just the pressure to outbid a competitor. That’s where it helps to bring in independent financial experts, run stress tests, and agree on more conservative projections. And once the deal’s closed, having a proper integration team that includes people from both companies can help keep things on track. This team can monitor progress and implement timely adjustments in response to unforeseen challenges.

Conclusion

International mergers and acquisitions might seem like a smart strategic move, but they usually come with additional challenges compared to deals that stay within one country. Things like cultural differences, tricky legal systems, unexpected political pushback, and even basic financial missteps can all get in the way. These issues tend to appear later in the process of the transaction, and they usually interfere negatively with the deals. Cases, such as Daimler and Chrysler, ABN AMRO’s takeover, and the blocked Broadcom-Qualcomm deal, help show just how these problems play out. These cases highlight that international deals are harder to get right and need extra attention from the start. Going forward, companies that take the time to prepare thoroughly, using tools like AI to spot risks early, thinking ahead about political concerns, and taking ESG factors seriously, will have a better shot at long-term success^[9]. Firms that invest in learning how to manage global integrations properly, instead of just relying on smart financial tactics, are more likely to succeed in the next phase of cross-border business growth. Ultimately, it is not the complexity of cross-border deals that causes them to fail, but rather the consistent failure of companies to approach that complexity with the strategic preparation and cultural sensitivity it requires.

Works Cited

Cartwright, Susan, and Richard Schoenberg. “Thirty Years of Mergers and Acquisitions Research: Recent Advances and Future Opportunities.” British Journal of Management, vol. 17, S1, 2006, pp. S1–S5.

Gaughan, Patrick A. Mergers, Acquisitions, and Corporate Restructurings. 6th ed., Wiley, 2011.

KPMG. Post-Deal Integration: Delivering the Value of M&A. KPMG International, 2011. https://assets.kpmg/content/dam/kpmg/pdf/2011/04/Post-Deal-Integration.pdf.

PwC. Doing Deals in the Age of ESG. PricewaterhouseCoopers, 2021. https://www.pwc.com/gx/en/services/deals/library/doing-deals-in-the-age-of-esg.html.

Stahl, Günter K., and Andreas Voigt. “Do Cultural Differences Matter in Mergers and Acquisitions? A Tentative Model and Examination.” Organization Science, vol. 19, no. 1, 2008, pp. 160–176.

U.S. Government Accountability Office. Committee on Foreign Investment in the United States: Action Needed to Address Evolving National Security Concerns Facing the Department of Defense. GAO-18-494, 2018. https://www.gao.gov/assets/gao-18-494.pdf.

Weber, Roberto A., and Colin F. Camerer. “Cultural Conflict and Merger Failure: An Experimental Approach.” Management Science, vol. 49, no. 4, 2003, pp. 400–415.

1. Susan Cartwright and Richard Schoenberg, “Thirty Years of Mergers and Acquisitions Research: Recent Advances and Future Opportunities,” British Journal of Management 17, no. S1 (2006): S1–S5. ↑

2. KPMG, Post-Deal Integration: Delivering the Value of M&A (KPMG International, 2011), ↑

3. Günter K. Stahl and Andreas Voigt, “Do Cultural Differences Matter in Mergers and Acquisitions? A Tentative Model and Examination,” Organization Science 19, no. 1 (2008): 160–176. ↑

4. Roberto A. Weber and Colin F. Camerer, “Cultural Conflict and Merger Failure: An Experimental Approach,” Management Science 49, no. 4 (2003): 400–415. ↑

5. U.S. Government Accountability Office, Committee on Foreign Investment in the United States: Action Needed to Address Evolving National Security Concerns Facing the Department of Defense, GAO-18-494 (2018). ↑

6. Patrick A. Gaughan, Mergers, Acquisitions, and Corporate Restructurings, 6th ed. (Hoboken, NJ: Wiley, 2011), 274;. ↑

7. Günter K. Stahl and Andreas Voigt, “Do Cultural Differences Matter in Mergers and Acquisitions? A Tentative Model and Examination,” Organization Science 19, no. 1 (2008): 160–176. ↑

8. KPMG, Post-Deal Integration: Delivering the Value of M&A (KPMG International, 2011). ↑

9. KPMG, Post-Deal Integration: Delivering the Value of M&A (KPMG International, 2011). ↑