Despite the Abysmal Failure Rate, Mergers and Acquisitions Continue to Remain a Top Choice Among Expanding Companies
Mergers and acquisition deals in Singapore don’t always experience success. So why do many businesses continue to rely on this option for growth?
In the first half of 2018, Singapore saw a steep surge in mergers and acquisition activities. That’s per the Thomson Reuters report. The total value of these activities reached US$33.8 billion, which is a 19% increase compared to the previous year. It wasn’t just the total value of these activities that increased. Average deal sizes also saw a substantial growth.
Intralinks and Cass Business School published a study that shows Singapore as the third among countries with the most failed deals. The results of successfully closed deals were not that encouraging either. Big names like Cisco, General Electric and Sony were once acclaimed dealmakers. Now, they are having to cope with the deadweight of some less than successful acquisitions.
What Does This Mean for Mergers and Acquisitions in Singapore?
Despite this, these deals remain the preferred choice among expanding companies. Why do mergers and acquisitions in Singapore remain the top choice despite the dreadful failure record? Because they are driven by a business’s need to grow. When organic growth initiatives fall short, these deals become the preferred choice. Particularly for companies that are publicly listed with the pressure they face from investors for high growth rates.
The Relentless Pursuit of Mergers and Acquisition Deals
Businesses continue to choose merger and acquisition deals in Singapore because it is the easier expansion route in foreign markets. Many businesses find it easier to establish a foothold this way rather than start from scratch. These deals are also one way that companies achieve synergies and diversify their businesses.
The reasons a business may have for choosing this pathway are diverse. So is the outcome of the deal, which may vary depending on several factors. Some of these factors include the company life cycle, industry, timing and strategic intention. When a mergers and acquisition deal in Singapore is successful, a business’s confidence soars. They are motivated to seek out even more opportunities, and this eagerness sometimes leads to the wrong kind of deals. A deal which ends up failing.
When a deal turns sour, the management comes under fire. The pressure to overcome this failure leads to the business seeking out yet another deal in the hopes it will succeed. Some CEOs even remain unfazed in the face of failed acquisitions. They even go as far as to overrate their business’s competency in the pursuit of potential targets. The desire is driven by the notion that larger companies will help to fortify its image and foster respect.
Yet another reason for continued interest in these deals despite the high failure rate is personal interest. A CEO of a big company enjoys the perks of greater recognition and prestige. Successful acquisitions no doubt contribute to that image and boost confidence among stakeholders.