A:

Most merger and acquisition (M&A) activities are carried out successfully, but from time to time, you will hear that a deal fell through as either the acquirer, target, or both parties withdrew from the deal. Three of the major reasons that mergers and acquisitions fall through are: regulatory problems, financing problems and problems relating to a company's fundamentals.

Regulatory issues typically involve a violation of government regulations. One important regulation that must be met involves antitrust and monopoly legislation. A merger or acquisition must not significantly affect the role of competition in the specific industry to ensure that the resulting company does not have a monopoly in its industry. For example, if a specific industry only has three companies providing services for the entire country, the U.S. Justice Department's antitrust division may strike down any attempted M&A activity between these three companies.

Financing problems tend to be factors with acquisitions, as opposed to mergers. An acquiring business needs to pay the target company's shareholders in order to buy the company. However, due to the size of the businesses involved, the acquirers often need to pay millions, if not billions, of dollars. In some cases, an acquirer may not be able to come up with enough cash to pay the promised price within an appropriate amount of time. In such an instance, the acquirer will need to withdraw from the deal.

Issues with the company's fundamentals can often occur when an acquiring company conducts more thorough number crunching to search for any red flags or skeletons in the target company's closet. For example, a private equity firm would probably be less interested in acquiring a company whose latest earnings have fallen substantially due to a decrease in demand for the company's products. Another example would be one party realizing that the other company may been participating in options backdating, which could lead to trouble with the Securities and Exchange Commission.

To learn more about mergers and acquisitions, please see The Wacky World of M&As and The Basics Of Mergers And Acquisitions.

RELATED FAQS
  1. Why would someone change their Social Security number?

    In general, the Social Security Administration, or SSA, does not encourage citizens to change their Social Security numbers, ... Read Full Answer >>
  2. Are spousal Social Security benefits taxable?

    Your spousal Social Security benefits may be taxable, depending on your total household income for the year. About one-third ... Read Full Answer >>
  3. What are the best ways to sell an annuity?

    The best ways to sell an annuity are to locate buyers from insurance agents or companies that specialize in connecting buyers ... Read Full Answer >>
  4. How are non-qualified variable annuities taxed?

    Non-qualified variable annuities are tax-deferred investment vehicles with a unique tax structure. After-tax money is deposited ... Read Full Answer >>
  5. Are spousal Social Security benefits retroactive?

    Spousal Social Security benefits are retroactive. These benefits are quite complicated, and anyone in this type of situation ... Read Full Answer >>
  6. Is Argentina a developed country?

    Argentina is not a developed country. It has one of the strongest economies in South America or Central America and ranks ... Read Full Answer >>
Related Articles
  1. Savings

    Traveling Abroad? Get the Best Exchange Rates

    When you exchange currencies, here’s how to make sure you are getting top value on the trade.
  2. Investing News

    How Does US Social Security Measure Up Abroad?

    Social Security is a hotly debated topic. After examining the retirement plans of three different countries, the U.S.'s does not come out the winner.
  3. Investing News

    Monday Intel: China, The Fed and Jackson Hole

    This weekend followed some of the most volatile market action in recent history as world markets were roiled by the Chinese market crash and its attempts to devalue the yuan. The past week also ...
  4. Investing Basics

    Explaining Unrealized Gain

    An unrealized gain occurs when the current price of a security exceeds the price an investor paid for the security.
  5. Technical Indicators

    Understanding Trend Analysis

    Trend analysis is the use of past performance to predict future price movement of a security.
  6. Investing Basics

    What's a Treasury Note?

    A treasury note is a U.S. government debt security that offers a fixed interest rate and a maturity date that ranges between one and 10 years.
  7. Investing Basics

    Explaining Trade Liberalization

    Trade liberalization is the process of removing or reducing obstacles that impede the exchange of goods and services between nations.
  8. Economics

    Understanding Switching Costs

    Consumers incur switching costs when they receive a monetary or other type of penalty for changing a supplier, brand or product.
  9. Economics

    Explaining Strategic Alliances

    A strategic alliance is a business relationship between two or more entities that share recourses for a common goal.
  10. Investing Basics

    Understanding the Spot Market

    A spot market is a market where a commodity or security is bought or sold and then delivered immediately.
RELATED TERMS
  1. Yield To Maturity (YTM)

    The total return anticipated on a bond if the bond is held until ...
  2. Gross Profit

    A company's total revenue (equivalent to total sales) minus the ...
  3. Interest Coverage Ratio

    A debt ratio and profitability ratio used to determine how easily ...
  4. Monetary Policy

    The actions of a central bank, currency board or other regulatory ...
  5. Receivables Turnover Ratio

    An accounting measure used to quantify a firm's effectiveness ...
  6. Remittance

    The term most commonly refers to money being sent via mail or ...

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!