In November 2024, a book was published called The M&A Failure Trap: Why Most Mergers and Acquisitions Fail and How the Few Succeed. Pulse 2.0 had the opportunity to interview the New York University and University of Buffalo professors Baruch Lev (retired) and Feng Gu to learn more about the book that they authored.
Pulse 2.0 (Amit): Can you tell me more about your background?
Author (Baruch): I am a professor of accounting and finance (emeritus) at New York University. Formerly at the University of California, Berkeley, where I was a professor at both the business school and the law school. Prior to that, I was at the University of Chicago. My research work focused on the areas of financial reporting quality, valuation of business enterprises, and intangible (intellectual) assets. It yielded 7 books and 125 research studies which were published in top academic journals. Attesting to the impact of my work on research and practice are more than 65,000 citations by others to my work (by Google Scholar).
In addition to academic work, I practiced as a CPA, investment banker, and board member. I was also for 15 years a partner in an economics consulting firm, focusing on finance, corporate valuation and accounting issues.
I am currently retired but continue my research and teaching work. I just concluded (with Feng Gu) a highly original and very useful book: The M&A Failure Trap: Why So Many Mergers and Acquisitions Fail and How the Few Succeed (to be published by Wiley, November 13, 2024 ). I am conducting research on AI, among other issues, and teach a graduate course on M&As.
Pulse 2.0 (Amit): Can you tell me more about the research that you focus on?
Author (Baruch): For a long time I have been particularly interested in the use of corporate financial information (quarterly, annual) by capital market investors, and particularly the limitations of this information. In this context I have devoted a considerable amount of research time to intangible assets (R&D, patents, IT, brands, human resources), their highly deficient reporting by corporations, and their valuation.
Pulse 2.0 (Amit): Can you tell me more about the challenges you have faced in your line of work?
Author (Baruch): My main challenge is convincing accounting regulators, like the Financial Accounting Standards Board, that the financial information companies disseminate to their shareholders, under the regulators’ guidance, is highly deficient and wholly inadequate for the needs of 21st-century investors. I am also challenged to convince CEOs that most of the M&As they conduct fail to achieve their stated goals and that significant structural changes are needed to improve the outcomes of mergers and acquisitions.
Pulse 2.0 (Amit): Can you tell me about some of your notable milestones?
Author (Baruch): First and foremost, the wide acceptance and adoption of many of my research ideas by my colleagues, investors and managers. Receiving honorary doctorates from universities in Italy, Belgium, and Finland attests to the worldwide impact of my work.
Pulse 2.0 (Amit): What are some of your future work goals?
Author (Baruch): To improve the process and outcomes of mergers and acquisitions, the largest investments corporations make. Also, to improve the quality of the information conveyed by financial reports to investors.
Pulse 2.0 (Amit): Are there any other topics that you would like to discuss?
Author (Baruch): Feng Gu and I just published our new, fully evidence-based book on mergers and acquisitions. We open with an explosive finding: 70–75% of the thousands of M&As conducted every year fail to achieve their expectations, causing very serious harm to shareholders, employees, and the economy at large. Distressingly, this failure rate keeps increasing. These findings are based on our sample of 40,000 acquisitions and a sophisticated statistical analysis.
Our new book, The M&A Failure Trap: Why So Many Mergers and Acquisitions Fail and How the Few Succeed (Wiley, November 2024 ), then goes on to expose the major reasons for this alarming M&A failure rate and how they can be overcome. In separate chapters, replete with real-world examples, we show, among other things, how improving the target’s integration into the buyer, avoiding conglomerate (unrelated) acquisitions, focusing on the target’s due diligence, and dramatically shifting buyers’ CEO acquisition compensation from conducting to succeeding in M&As, will significantly improve the outcomes of corporate acquisitions.
We conclude the book by offering a 10-factor acquisition scorecard, which will enable executives, directors and investors to predict the likelihood of a proposed acquisition. A first of its kind in the M&A literature.
Pulse 2.0 (Amit): Could you tell me more about your background?
Author (Feng): I am a professor and chair of accounting and law at the University at Buffalo School of Management. I have published research focusing on analysis of financial information, relevance of corporate accounting reports, and valuation of intangible assets. I teach accounting and financial analysis courses to undergraduate and graduate students as well as corporate executives. In my new book, The M&A Failure Trap: Why Most Mergers and Acquisitions Fail and How the Few Succeed, my co-author Baruch Lev and I demonstrate the high failure rate (70–75%) of corporate acquisitions and uncover important lessons for CEOs, directors, and investors to avoid the M&A failure trap.
Pulse 2.0 (Amit): Can you tell me more about some of the challenges that you face in your line of work?
Author (Feng): A challenge in business research is to demonstrate its relevance for real-world business practices. Our new book on M&A failure is groundbreaking as it provides unequivocal evidence showing the high 70–75% failure rate of M&A deals, reveals institutional factors for the systemic failure of M&As, and offers practical solutions to improve the outcomes of M&As, including a scorecard designed to predict the outcomes of M&As. The ideas advanced in this book are directly useful for reversing the frequent and large value destruction brought by M&As.
Pulse 2.0 (Amit): Can you tell me more about your milestones and future work goals?
Author (Feng): A few years ago, Baruch and I published our first book together, The End of Accounting and the Path Forward for Investors and Managers. In this widely-circulated book—it has been translated into four major languages and read and discussed by many, we showed the declining usefulness of prominent accounting numbers, such as earnings and related metrics, in informing investors of enterprise performance. We traced this alarming phenomenon to a fundamental change in the economy, namely the trend of intangible assets (patents, software, and brands) replacing tangible assets (inventories, buildings, and equipment) to become the most dominant value creators.
In our book The End of Accounting, we proposed a new reporting approach focusing on the strategic resources and consequences that are at the center of investors’ information needs for their task of valuing businesses. The message in this book has strongly resonated with business professionals around the world. Since the publication of this book, we have engaged with a wide spectrum of business professionals (analysts, managers, accountants, and investor relations professionals) to explore the implications of our research and implementation of our proposals.
The success and impact of our first book inspired us to focus our research on real-world business issues with large and far-reaching consequences. We decided to write a book to examine mergers and acquisitions (M&As) because these transactions are voluminous—the number of M&A deals is about 5,000 worldwide with a total deal value of around $2 trillion per year—and affect a wide array of stakeholders (investors, employees, and customers). We hope the research results from this forthcoming book, The M&A Failure Trap: Why Most Mergers and Acquisitions Fail and How the Few Succeed, will shed light on how to avoid the large and reckless destruction brought by many M&A deals. We are ready to engage with executives, directors, investors, and other stakeholders of M&As to discuss the message of our new book and our proposals for how to improve the outcomes of M&As.
