Why is synergy so difficult in mergers of related businesses

Purpose – When a merger or an acquisition fails, usually integration problems or overpayment gets the blame. The authors illustrate that a common cause of failure is the traditional notion of synergy that exacerbates the overpayment and integration problems. This synergy usually leads to the failure of many mergers, yet synergy remains one of the most common justifications that management uses to shareholders.Design/methodology/approach – The main methodology is the author's interview of the CEOs of many successful acquiring firms as well as case studies of unsuccessful firms (some based on secondary sources). This methodology is complemented by academic research on these topics dating back to the early 1980s that had raised caution signals but were largely ignored.Findings – The key finding is that it is very difficult to evaluate the nature of synergies, especially revenue synergies, during merger negotiations. This leads to overpayment and unanticipated integration problems.Research limitations/implica...