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EXECUTIVE OVERVIEW
Despite the initial optimism. many organizational marriages prove to be financially disappointing. Given the consistently high rate of merger and acquisition failure. the selection of a suitable organizational bedfellow is a major financial decision. Selection decisions are generally driven by financial and strategic considerations. yet many organizational alliances fail to meet expectations because the cultures of the partners are incompatible. Based on recent research. this article examines the role of culture compatibility in determining venture outcomes. It focuses on the complex interaction between the existing type of premarital culture of the partners and the terms and interpretation of the type of marriage contract the parties believed they had entered.
Despite the risk, the prospect of increasing profitability and market share by acquisition or merger, continues to exercise a. more immediate and seductive appeal to business leaders than a reliance on growth alone. This is reflected in the recent and unprecedented wave of merger and acquisition activity worldwide, and the correspondingly high rate of failure associated with it.
It is estimated that at least one in four U.S. workers have been affected by the current wave of mergers and acquisitions.(1) In the latter part of the 80s, U.S. companies increasingly found themselves the subject of foreign takeover bids. While the United Kingdom remains the largest direct foreign investor in the United States, the level of Japanese investment has sharply increased. The situation has been paralleled in Europe. Between 1984 and 1989, the number of European cross-border mergers and acquisitions increased almost ninefold. In 1990 alone, the value of cross-border mergers and acquisitions was L33.5 billion. At the same time, many well-known British companies such as ICL and Aquascutum found themselves closely involved with Japanese partners.
While the motives for merger are many--practical, psychological, or opportunist--the stated objective of all mergers and acquisitions is to achieve synergy or the commonly described "two plus two equals five" effect. However, as many organizations learn at considerable expense, the mere recognition of potential synergism is no guarantee that the combination will actually realize that potential. Empirical studies repeatedly demonstrate that, at best, only half of all mergers and acquisitions meet initial financial expectations.(2)
The burning question remains--why do so many mergers and acquisitions fail? Short term, many seemingly...