Value Leakages in Mergers and Acquisitions: Why they occur and how they can be addressed

The aggregate evidence on merger and acquisition performance suggests that, on average, shareholders fail to benefit. This article argues that one explanation for these disappointing results is the leakage of shareholder value in the post-merger integration processes. Shareholder value is attacked from two sides: first, gains are reduced by internal stakeholders seeking rents at the expense of shareholders; and second, costs are increased as a result of reductions or reallocations of effort. Identifying the different kinds of leakages of shareholder value is, however, only the first step; more important is to examine what can be done to limit such leakages. We suggest a number of practical steps organisations can take to resolve each of these leakages. However, while a remedy may resolve the leakage of shareholder value in one area, the same remedy may have adverse affects on leakages in other areas: the challenge for managers is to find the best way to manage these trade-offs. We also discuss how the different leakages impact different types of M&As, and find that multiple M&As are the most challenging type for organisations to pursue.