Mergers and acquisitions persistently fail because of over-optimistic assumptions
Here’s a puzzle that should keep executives awake at night: between 70% and 90% of mergers and acquisitions fail to deliver their promised value, yet in 2024 alone, companies spent over $2.6 trillion chasing the merger mirage. The big weaknesses? Taking untested assumptions as facts. Taking so long to reach a result that the time for risks to emerge expands greatly. And leaders’ personal association with decisions to acquire, which invites in cognitive and social biases – including the famous “escalation of commitment to a failing course of action.”
Consider an example unfolding before our eyes: Dick’s Sporting Goods’ $2.4 billion acquisition of Foot Locker, announced in May 2025. On paper, it’s a strategy consultant’s dream – two complementary retail giants combining forces to dominate the athletic footwear landscape. Yet analyst John Kernan from TD Cowen called the deal a “strategic mistake.” This isn’t just skepticism – it’s pattern recognition from someone who’s seen this movie before. Foot Locker operates about 2,400 stores across 20 countries but has closed hundreds of stores since 2023, struggling with the decline of mall-based retail. Dick’s isn’t just buying a business – it’s inheriting a transformation challenge.
The language around mergers has become a masterclass in strategic wishful thinking. Talk of synergies has become ubiquitous, but synergies aren’t mathematical certainties – they’re bets on behavioral change across complex organizational systems. They assume seamless integration of operations, systems, and cultures – assumptions that history shows are rarely met.
So why do smart leaders keep making the same mistakes? The research points to overconfident CEOs who imagine that a transformational acquisition can reboot a company’s profitability. Acquisitions appear in many cases to be tenure insurance for CEOs, regardless of actual value creation. They may forget that success in one set of circumstances doesn’t guarantee it in another. And incentives matter too – chief executives’ pay is highly correlated with company size.
Sometimes mergers are prompted by a desire to keep a competitor from making a similar move. But in a world of genuine uncertainty, the boldest strategy might be to resist the siren call of transformational deals altogether.
The uncertainty-informed approach
The persistent failure rate of M&A suggests we need a fundamentally different approach that embraces rather than denies uncertainty.
Start with optionality over integration Rather than going for immediate full integration, structure deals to preserve the ability to learn and adapt. Maintain separate operations initially, allowing for gradual integration based on actual rather than projected synergies.
Price for probable failure If 70-90% of deals fail, pricing should reflect this reality. Pay prices that make sense even if synergies don’t materialize.
Focus on capability acquisition, not market consolidation The most successful recent tech acquisitions – think Google’s purchase of YouTube – focused on acquiring unique capabilities and allowing them to flourish within a
larger ecosystem.
Build integration competence before you need it Learn from companies like Cisco: it has completed over 200 acquisitions, crediting much of its success to the recognition that human capital is crucial. It reports 87% retention of key employees from acquired companies for more than two years.
Mergers don’t fail because of incompetent leaders, but because leaders are operating under the illusion that complex organizational change can be delivered through financial engineering. The real question isn’t whether the Dick’s-Foot Locker deal will succeed (the odds say it won’t), but when leaders will stop being seduced by the merger mirage and start building the incremental capabilities that create lasting competitive advantage.
Rita Gunther McGrath is professor of management at Columbia Business School
