This is from the “Accounting Makes Cents” podcast episode #114 released on Monday, 1 June 2026.
Today, I want to talk about something that looks exciting on paper but is often much more difficult in reality: mergers and acquisitions. This is a topic covered under the strategic level of the CIMA syllabus, F3 to be exact. You may be asked why companies acquire other businesses, evaluate whether an acquisition creates value, discuss how to value a target company, or how an acquisition should be financed. Sometimes, you may also be asked to assess post-transaction issues and reasons acquisitions succeed or fail. And that’s the bulk of our discussion for today, it’s these reasons.
Whenever a company announces that it is acquiring another business, the language is usually very confident. We hear about strategic alignment, growth opportunities, synergy potential, and value creation. It often sounds like a clear step forward. Yet despite all of that optimism, many mergers do not deliver the results that were originally expected. So the question is, why does that happen?
Jump to show notes.
Overly Optimistic Expectations
One of the first reasons is that expectations are often set too high from the beginning. When a deal is being evaluated, there is a natural tendency to focus on the upside. Managers may feel pressure to justify the acquisition, especially if significant time and resources have already been invested in negotiating it. As a result, forecasts can become more optimistic over time. Assumptions about growth, cost savings, and market expansion may gradually become more ambitious, sometimes without fully testing whether they are realistic. By the time the deal is approved, it can already be based on a very optimistic version of the future.
The Reality of Synergy
Closely linked to this is the idea of synergy. Synergy is essentially the expectation that the combined organisation will be worth more than the two businesses operating separately. In theory, this makes sense. You might eliminate duplicated costs, share technology, expand into new markets, or improve efficiency through scale. On paper, these benefits can look very convincing. The problem is that synergy is much harder to achieve in practice than it is to describe in a presentation. Cost savings often take longer than expected because contracts need to be renegotiated, systems need to be integrated, and teams need time to adjust. Revenue synergies are even more uncertain because they depend on customer behaviour, market conditions, and how well the combined business executes its strategy.
Culture: The Hidden Factor
Another major factor is organisational culture. This is often underestimated because it is difficult to measure. Financial statements can tell you a lot about a business, but they do not tell you how people behave, how decisions are made, or how teams communicate. When two organisations with very different cultures are brought together, friction can arise quite quickly. One company might be used to fast decision-making and informal communication, while the other relies on structured processes and multiple layers of approval. Neither approach is necessarily wrong, but combining them can create confusion and frustration. Employees may feel uncertain about expectations, and in some cases, key talent may choose to leave entirely.
Integration Is Where Deals Are Won or Lost
Even when cultural issues are identified early, integration challenges can still create significant problems. Completing the acquisition is only the beginning. The real challenge is what happens afterwards. Systems need to be combined, which might involve different IT platforms, reporting tools, or internal controls. Processes need to be aligned so that the organisation can operate consistently. Management structures may need to be redesigned, and responsibilities clarified. This takes time, resources, and a lot of coordination. It is often said that buying a company is the easy part, while integrating it successfully is where many deals start to struggle.
The Human Impact of Mergers
At this point, it is useful to add another angle that is often overlooked: the human impact of mergers. Even when the financial logic of a deal is strong, people inside the organisation are the ones who have to make it work in practice. Uncertainty can affect morale. Employees may worry about job security or changes to their role. Productivity can temporarily fall simply because people are trying to understand new systems and expectations. Communication becomes critical during this phase, but it is also one of the most difficult areas to manage effectively.
What Happens After the Announcement
Another issue that can arise is what happens after the announcement compared to what happens in reality over time. Initially, there is usually a period of optimism. The deal is seen as strategic and forward-looking. However, once the integration begins, the complexity becomes more visible. Small issues that were not considered in the planning stage start to accumulate. For example, differences in accounting systems might delay reporting. Differences in pricing strategies might confuse customers. Differences in internal policies might slow down decision-making. Individually, these problems may seem minor, but together they can significantly affect performance.
Measuring Success Properly
From a management accounting perspective, one of the key concerns is whether the acquisition is actually delivering the value that was promised. This leads to an important question: how do we measure success after the deal has been completed? Often, organisations focus heavily on the pre-acquisition phase, where valuations, forecasts, and approvals take place. But there is sometimes less discipline around post-acquisition review. Without proper measurement, it becomes difficult to know whether the expected benefits are being achieved.
This is where performance measurement becomes essential. Success might not be measured purely in terms of profit. It could also include cost savings achieved compared to forecasts, improvements in market share, customer retention rates, or employee turnover levels. The key is that there needs to be a clear set of indicators defined before the deal takes place, not after. Otherwise, it becomes too easy to reinterpret success in a way that justifies the original decision.
What Could Organisations Do Better?
This brings us to another important question: what could organisations do better?
One of the most important improvements is more realistic due diligence. This means not only looking at the financial statements of the target company, but also critically challenging the assumptions behind the acquisition. Are the projected synergies actually achievable? How long will integration realistically take? What could go wrong, and what would the impact be if things do not go according to plan? These are uncomfortable questions, but they are essential for better decision-making.
Another improvement is stronger integration planning before the deal is completed. In many cases, integration planning happens after the acquisition is approved. However, the most successful mergers tend to treat integration as something that should be designed early, not later. This includes thinking about systems, people, processes, and communication strategies in advance, rather than reacting to problems once they appear.
Management accountants also have a key role to play here. They can help challenge overly optimistic assumptions, model different scenarios, and highlight risks that may not be immediately visible. After the acquisition, they can track performance against the original forecasts and provide honest reporting on whether expected benefits are being achieved. This helps ensure accountability does not disappear once the deal is completed.
A further improvement is the use of phased integration rather than attempting to combine everything at once. In some cases, organisations try to integrate systems, teams, and processes too quickly, which increases the risk of disruption. A more gradual approach can allow problems to be identified and resolved earlier, reducing the risk of large-scale failure.
The Real Reason Behind M&A Failure
So, when we step back and look at all of this together, it becomes clear that mergers are not just financial transactions. They involve strategy, people, systems, culture, and execution all working at the same time. Even if the financial logic appears strong at the start, the outcome depends heavily on how well all of these elements are managed in practice.
So I’ll leave you with this final thought. If there is one lesson to take away from all of this, it is that mergers and acquisitions are not only financial transactions. They are organisational transformations. And while strategy may bring two companies together on paper, it is execution that ultimately determines whether one plus one becomes three — or simply remains one plus one.
Show notes simplified
In this episode, MJ the tutor explores why so many mergers fall short of expectations and what really happens once the deal is done. Why even well-planned mergers can struggle once strategy meets reality—and what organisations can do to improve their chances of success.
MJ THE TUTOR 