Why Most Acquisitions Fail
Why Most Acquisitions Fail (And What To Do About It)
I recently spoke with the Strategy Director of a global, billion-dollar services company about a potential acquisition they were considering. Our conversation soon shifted to the broader topic of acquisitions—why so many fail, and why the Commercial Due Diligence (CDD) process that many companies rely on is often not fit for purpose.
Every year, billions are spent on mergers and acquisitions (M&A), with boards and executives persuaded that acquisitions are the fastest path to growth. Yet despite the enthusiasm, the evidence is sobering: research consistently shows that 60–90% of acquisitions fail to deliver on their original objectives. In most cases, a significant amount of shareholder value is destroyed.
So why does this happen so often, and what can business leaders do differently to avoid becoming another statistic?
The Synergy Trap
Mark Sirower knows a thing or two about M&A failures.
Sirower is a partner in Deloitte Consulting’s M&A practice and his book The Synergy Trap remains one of the most enduring analyses of why acquisitions destroy rather than create value. His central insight is straightforward: to win control of a target, acquirers must pay a premium, often 30–50% above market value. The only way to justify that premium is by delivering synergies — additional value that would not exist without the merger.
But those synergies are rarely realised. Executives tend to overestimate cross-selling opportunities, underestimate integration costs, and ignore the hidden risks of cultural misalignment. Competitors do not sit still, often targeting unsettled customers during the transition. Meanwhile, management focus is diluted as leaders wrestle with integration instead of driving the core business.
As Sirower puts it: synergies are easy to promise, but hard to deliver. And because acquirers must pay a premium up front, even modest under-performance can quickly turn a deal into a value-destroying exercise. Sirower also confirms that “fully 65 percent of major strategic acquisitions have been failures.”
So do your homework before you but a company. The technical term for that homework is due diligence and it covers a multitude of activities – financial, legal, operational and commercial.
The Under-Appreciated Role of Customer Due Diligence
One area of commercial due diligence deserves far more attention than it usually receives: Customer Due Diligence (CDD).
In business-to-business (B2B) markets, the real value of an acquisition lies in its future revenue streams — often concentrated among a surprisingly small client base. Many billion-dollar companies derive more than half their revenues from fewer than 500 customers, and sometimes fewer than 100.
Yet acquirers rarely probe this customer base with sufficient depth. In some cases, a few senior executives might meet a handful of clients, ask if they are satisfied, and whether they expect to buy more in the future. While useful, these anecdotes are not enough. They are often biased, rarely benchmarked, and lack independence.
Robust CDD requires more. It means engaging systematically with the clients that generate the most revenues. It means hearing not just from the main contact but also from decision-makers, influencers, and end users. And it means using structured methodologies to uncover not only current satisfaction but also future buying intentions, perceptions of value, and risks of defection.
My study reveals that fully 65 percent of major strategic acquisitions have been failures
Questions Every Board Should Be Asking
When reviewing the due diligence on a target company, boards and executives should challenge whether the process has delivered real insight into the customer base that is being acquired. Three questions are critical:
- Are we speaking to the right customers? Do the voices represented account for at least 50% of total revenues? Are multiple perspectives captured within each client relationship – key decision makers, influencers, and operational contacts?
- Are we hearing the true Voice of the Customer? Were customers selected independently, or hand-picked to present a flattering view? Are responses benchmarked against peers to provide context?
- Are we asking the right questions? Does the analysis go beyond satisfaction to address loyalty, growth potential, and perceptions of value for money? Basically, do we know if these customers are going to stay or leave?
Only with these insights can business leaders form a credible view of revenue sustainability and growth potential — the foundations of any acquisition’s value.
Avoiding the Pitfalls
The lesson from decades of research and practice is clear: acquisitions rarely fail because of weak financial models. They fail because assumptions about customers, markets, and integration prove unrealistic.
Boards and executives must therefore insist on rigorous, independent, and customer-centric due diligence. Without it, the risk of falling into the “synergy trap” remains high. With it, leaders at least give themselves a fighting chance to deliver on the promises that justify the premium paid.
Acquisitions will always carry risk. But with disciplined valuation and a much sharper focus on customers — the true engine of future revenues — companies can tilt the odds away from failure and toward lasting value creation. So do your homework – and in particular your customer due diligence – carefully before you execute that next transaction.
Contact us for a chat if you would like to hear more about how to measure the value of that customer base that you’re planning to buy.
