Most board time on an acquisition goes to the model and the financing. In the record of 88 large deals, how a deal was paid for and whether it was folded in made little difference to how it ended. Of 78 with a known outcome, 19 were later sold off or written down, and they cluster around three things: how far the target was from what the buyer ran, whether the buyer was paying for a capability or for growth, and whether a contest set the price.
The ten questions
Which of our existing businesses will run this one in its first year, and what does that business already know about the target's customers?
Where the target was a business the buyer did not run, 7 of 14 deals ran into trouble. Next door to the core, 4 of 32 did.
Are we buying a capability our customers will use, or growth because our own business is slowing? Say which, in one sentence.
7 of 15 deals bought as a new growth engine ran into trouble, against 2 of 27 bought for a capability the buyer lacked.
If this were a business we already ran, would we invest this much in it? If not, what makes owning it different?
Only 2 of 14 deals into a business the buyer did not run paid off as intended.
If a rival is bidding, what price walks us away, and who in this room has agreed to it before the next round?
Where a contest set the price, 3 of 9 deals ran into trouble, against 6 of 43 where it was negotiated.
How much of the price is justified by what we can do with the target that the other bidder cannot?
In a contest the winner is the bidder most willing to pay. Kodak won Sterling Drug that way, and Philip Morris won Kraft. Both deals were later undone.
Who on the team has run a business with the target's economics: its margins, its cycle, its customers?
PepsiCo found that "chilled orange juice is its own beast". It sold Tropicana 23 years after buying it.
What three numbers will tell us within two years that the deal is going wrong, and who reports them to this board?
Deals that were undone took a median 6 years to unwind. The early signs are the only cheap moment to act.
Has the financing debate crowded out the questions about fit?
Deals paid in cash ran into trouble at 20%, deals paid in shares at 23%. How a deal was paid for did not separate outcomes; what was bought did.
If regulators impose conditions, which part of the stated rationale survives them?
2 deals in the record never closed: Nvidia abandoned Arm citing regulatory challenges, and a court blocked Kroger and Albertsons.
Who will be accountable for this decision in 6 years' time?
That is the median wait before an unwound deal in the record was undone. The people who approve a large acquisition are rarely the people who unwind it.
Warning signs from deals that went wrong
| Sign | Seen in | In the sources’ words |
|---|---|---|
| The case is made in the language of diversification or a slowing core | Verizon–AOL (2015) | “Diversifying away from a slow-growing, capital-hungry utility business into high-margin advertising wasn't stupid; it was the consensus play” |
| Nobody can say what the buyer brings to the target | eBay–Skype (2005) | “buying a business adjacent to nothing eBay did” |
| The target's economics are unlike anything the buyer runs | PepsiCo–Tropicana (1998) | “chilled orange juice is its own beast: it lives in a refrigerated case, spoils fast, and depends on a frozen-cold supply chain” |
| The buyer is entering a market it says it does not yet understand | Best Buy–GreatCall (2018) | “Best Buy spent over $1.3 billion buying its way into a market it did not understand” |
How does your deal compare?
Take the Distance Test
Six questions about your deal, read against the same 88 acquisitions. Free, in two minutes, with the result emailed to you if you want it.
Start the Distance TestWhere the numbers come from
88 acquisitions of $1 billion or more, each researched from company filings and statements and from reporting. Each deal’s outcome is judged from what those sources record, and each deal counts once. The record leans toward famous deals, both failures and successes, so read the patterns as what happened to companies before you, not as odds for yours.