Why do some mergers and acqusitions fall through?

By Albert Phung AAA
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. How do real estate agents get listings?

    Learn about how real estate agents get listings in top real estate markets, as well as in smaller areas, through utilizing ...
  2. What is the difference between a prepaid credit card and a gift card?

    Although prepaid and gift cards are used in the same manner, a prepaid credit card can be used repeatedly, while a gift card ...
  3. How and where is revenue recognized from barter transactions?

    Find out how the IRS requires companies that engage in barter transactions to recognize the revenue from such transactions ...
  4. Does gross profit include depreciation or amortization?

    Understand the distinction between depreciation and amortization, and learn under which circumstances either type of expense ...
RELATED TERMS
  1. Merchandising

    Merchandising is any act of promoting goods or services for retail ...
  2. Appraised Equity Capital

    The excess of the market value of an asset over its book value. ...
  3. Asset Liquidation Agreement (ALA)

    A contract between the Federal Deposit Insurance Corporation ...
  4. Adverse Domination

    A legal doctrine that allows regulators to bring litigation against ...
  5. Affordable Market Value (AMV)

    The sale price of a multi-family residential housing unit sold ...
  6. Asset Valuation Review (AVR)

    A process that establishes an estimate of the value of a failed ...
comments powered by Disqus
Related Articles
  1. 7 Ways To Save Money On Business Travel
    Savings

    7 Ways To Save Money On Business Travel

  2. 3 ETF Signals You May Use For Confirmation
    Economics

    3 ETF Signals You May Use For Confirmation

  3. Are All ETF Correlations Barreling Towards ...
    Mutual Funds & ETFs

    Are All ETF Correlations Barreling Towards ...

  4. 10 Steps For First-Time Home Buyers
    Home & Auto

    10 Steps For First-Time Home Buyers

  5. The Education of Warren Buffett
    Investing Basics

    The Education of Warren Buffett

Trading Center