Smartmerger Blog

Why the incentive structure for M&A deals is broken and how to fix it

Written by Michael Klawon | 12.August 2022

 

Let us acknowledge that the common incentive model for consultants and advisors for Mergers & Acquisition (M&A) deals is broken. M&A folks know this statistic, it is often quoted and well known: 70 % of mergers fail. You can argue that the McKinsey report from which this estimate is sourced, is quite old. It is from 2010. And of course failure depends on the deal objectives, and the criteria how to measure success. A key problem in measuring the success of M&A transactions is to define the term "success" and find a value that fits the definition and is both measurable and cardinally scalable". But, it does confirm what academia is saying about value creation in M&A deals for the last decades and today. The vast majority of mergers fail to generate improvements in operating synergies and profits. The incentive structure for M&A deals is broken. Let’s fix it.