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. What is the difference between a merger and an acquisition?

    Learn about the legal differences between a corporate merger and corporate acquisition, two terms used when companies are ... Read Answer >>
  2. What happens to the stock prices of two companies involved in an acquisition?

    When a firm acquires another entity, there usually is a predictable short-term effect on the stock price of both companies. ... Read Answer >>
  3. How does a merger affect the shareholders?

    Explore the impact of a merger and understand how the process affects shareholders of the newly merged firm in terms of stock ... Read Answer >>
  4. What is a stock-for-stock merger and how does this corporate action affect existing ...

    First, let's be clear about what we mean by a stock-for-stock merger. When a merger or acquisition is conducted, there are ... Read Answer >>
  5. How can I develop a profitable merger arbitrage strategy?

    Learn how to utilize a simple merger arbitrage trading strategy to profit from the typical temporary price discrepancies ... Read Answer >>
Related Articles
  1. Investing

    What Investors Can Learn From M&A Payment Methods

    How a company pays in a merger or acquisition can reveal a lot about the buyer and seller.
  2. Small Business

    What Merger And Acquisition Firms Do

    The merger or acquisition process can be intimidating. This is why merger and acquisition firms step in to facilitate the process.
  3. Financial Advisor

    Acquire A Career In Mergers

    This exciting sector demands a lot from its advisors. Are you up for it?
  4. Small Business

    The Basics Of Mergers And Acquisitions

    Learn what corporate restructuring is, why companies do it and why it sometimes doesn't work.
  5. Investing

    How The Big Boys Buy

    Learn what those in-the-know look for when acquiring a company.
  6. Investing

    How Mergers and Acquisitions Can Affect A Company

    M&A can have a profound effect on a company’s growth prospects and outlook, but with a significant degree of risk.
  7. Investing

    Do Mergers Save Or Cost Consumers Money?

    A merger or acquisition can actually be beneficial to the customer - find out how, in this article.
  8. Trading

    Trade Takeover Stocks With Merger Arbitrage

    This high-risk strategy attempts to profit from price discrepancies that arise during acquisitions.
RELATED TERMS
  1. Acquisition

    A corporate action in which a company buys most, if not all, ...
  2. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies ...
  3. Acquisition Premium

    An acquisition premium is the difference between the estimated ...
  4. Merger Of Equals

    A merger of equals is when two firms of about the same size come ...
  5. Merger Securities

    A non-cash asset paid to the shareholders of a corporation that ...
  6. Predator

    In mergers and acquisitions, a company with sufficient financial ...
Hot Definitions
  1. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  2. Risk Tolerance

    The degree of variability in investment returns that an individual is willing to withstand. Risk tolerance is an important ...
  3. Donchian Channels

    A moving average indicator developed by Richard Donchian. It plots the highest high and lowest low over the last period time ...
  4. Consumer Price Index - CPI

    A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, ...
  5. Moving Average - MA

    A moving average (MA) is a widely used indicator in technical analysis that helps smooth out price action by filtering out ...
  6. Stop Order

    A stop order is an order to buy or sell a security when its price increases past a particular point in order to limit losses ...
Trading Center