3. Why m&a's fail

3.1 Possible reasons of failures in m&a

As stated above, WilmerHale Report 2015 shown that M&As are becoming increasingly popular and ever more important for today's economy. According to overview stated in Straub, it is said that M&A failure rates is high (Straub, 2006, p.3). Some sources of errors that cause to the failure are still remain unclear.

One of the main failure source of M&A's is improper strategic planning (Marks& Mirvis, 2011, p.165). Companies often pay not enough attention toward integration issues and spend not that much time in analyzing current and future market trends (Nguyen,p.448). After the decades of research on M&A's, there are still no critical success factors found. The proposed critical success factors for M&A are as numerous as the consultants, managers and academics in the field. The authors argue that success rate depends on the factors that may cause significant problems. Four of these factors play vital roles and can be presented as reasons for failures. They are: unrealistic expectations, overconfidence, promoters of external advice, distrust (Kummer, 2007, p.5).

The first one, unrealistic expectations. Expectations is nothing else as beliefs that employees and organizations keep and believe that they will be realized. They are dependent on the environment in which employees operate and interact with other individuals (Garibaldi, p.6). Usually individuals build wrong expectations, due to underestimation of the particular situation, for example the integration process. The expectations are influenced by different factors, such as the stage of M&A process and level of its perception by employees ( Kummer, p.6).

The second reason is the confidence of managers. The role of management in M&A process is very high, decisions made by managers are crucial, because how the firm will perform is dependent only on them (Garibaldi, p.8). Confidence can lead to two possible outcomes: success or failure. In order to reach the success it is important to convince and stimulate employees. Manager should show that he believes in the success of the company and without any effort it will be impossible to reach it. As Peterson says, "belief and hope in the possibility of success are powerful ingredients in achieving success" (Peterson 2000 sited in Steger& Kummer, p.9). But from the other hand optimistic belief can be costly for the firm, because overconfidence is killing. It happens when desires and possibilities do not coincide, and manager does not want to accept this by pushing the company toward the risk (Weber & Tarba &, 2014, p.6). According Steger and Kummer, over confidence can be considered as additional force which can speed up an acquisition process (Steger& Kummer, p.10). Chief Executive Officer (CEO) overconfidence is a benefit in the case of making a deal, for example with another company, because the ability to gain from the particular situation while convincing the others about the benefits that they can get, leads to the success. But due to the ego of the CEO M&A can fail, Weber justifies this by the fact that successful and talented people suffer from pride or self-confidence and overestimates their own ability. It is also known as "hubris hypothesis" or the "sin of pride" (Steger& Kummer, p.10)(Weber & Tarba &, 2014, p.6). Managers often use services of promoters while making M&A transaction. So, the third possible reason for failure is promoters of external advice, may push companies to a combination for self-interest. They providing their services with the aim to get the fees, they push the firms into M&A process by convincing them in the success that they will get, but they often do not care about the outcome of the firms (Steger, Kummer, p.12).

The fourth vital role is distrust. For better understanding how distrust may cause the future of the M&As, it is necessary to provide a definition on what a trust is. According to Sarala, trust is a critical-relation-specific asset in M&As between the employees of the merging firms (Sarala, p.7). In other words, it is positive attitude of the employees toward the partner firm or positive intentions of the partner firm. According to Vaara, trust among employees with similar culture is greater than with different culture (Vaara,,p.8). The opposite to the trust is distrust - the negative attitudes and moods of employees for the uncertain future they face (Kummer & Steger, p.13).

Trust is important vehicle for M&A to be realized. If there is will be no trust, then there would be no tendency to enter the M&A process (Guaghan, 2007,p.27). Moreover, it makes partnerships ties stronger. Distrust is a barrier for knowledge transfer in M&As, because it causes unpleasant reactions among the employees. If knowledge transfer between the acquiring and acquired units a determinant of the success of an acquisition (Sarala, p.7), then it means that distrust has a direct impact on the unsuccessful performance of the M&As. Distrust may grow in the result of gossiping, which appear due to the drawbacks in management (van Dick, p.12). Misinformation of employees starts from the very beginning, at the pre-merger stage. According to Pikura, they often kept in the "black box" and do not know about the intentions of the company to enter the M&A process. When the staff of the company gets the information from the outside sources like press, it leads to misrepresented picture of the acquisition and counterproductive activities (Pikura, 1999, p.9). So, the roots of the potential failure starts exactly here and it implies that study of the organizational culture is necessary for the realization of merger or acquisition.