THOUGHT SPARKS
THEMERGERMIRAGE: THETRIUMPHOFHOPE OVEREXPERIENCE
Rita McGrath
Introduction
Synergy. Market expansion. Gaining share. Cost savings. Diversification. Talent acquisition. Owning a unique asset. Moving into a high-growth sector. These and many more reasons have often propelled companies into one another’s arms, regardless of the generally dismal track record such combinations reveal.
The Persistent Paradox of M&A Failure
Here's a puzzle that should keep every boardroom 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 annually chasing the merger mirage. This isn't just a statistic—it reveals the same kind of breakdowns in planning for big things that we also see in the systemic failures of mega projects and in my own work on major corporate innovations that went terribly, terribly, wrong, landing them in my “flops file.”
The Latest Chapter: Dick's and Foot Locker
Dance the Acquisition
Tango
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 reads like a strategy consultant's dream—two complementary retail giants combining forces to dominate the athletic footwear landscape
Foot Locker brings the prospect of international markets, greater leverage with manufacturers.
The Integration Trap: Where Good Intentions Go to Die
What makes the Dick'sFoot Locker deal particularly illuminating is how it embodies a classic M&A failure pattern.
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.
Their well-regarded CEO, Mary Dillon, was very successful in her previous role, putting Ulta Beauty at the top of its category, but she has struggled to right the ship at Foot Locker.
The Synergy Seduction: When
1 + 1
Equals Less Than 2
The language around mergers has become a masterclass in strategic wishful thinking. The usage frequency of "synergy" in corporate merger announcements tripled between the 2000s and 2010s. But synergies aren't mathematical certainties—they're bets on behavioral change across two (or more) complex organizational systems.
Research shows that 83% of merger deals failed to boost shareholder returns, often due to mismanagement of brands, risk, price, strategy, cultures, or management capacity. The Dick'sFoot Locker combination promises cost synergies and enhanced negotiating power with suppliers like Nike, but these benefits assume seamless integration of operations, systems, and cultures—assumptions that history suggests are rarely met.
Learning from the Wreckage: Recent Cautionary Tales
The landscape is littered with recent reminders of M&A hubris. Microsoft's acquisition of Nokia's mobile division for $7.2 billion in 2014 is considered one of the worst acquisitions of all time, resulting in massive layoffs and the failure to integrate Nokia's hardware with Microsoft's software ecosystem effectively.
The AOL-Time Warner merger of 2000, valued at $165 billion, promised transformation but delivered cultural integration disasters. More recently, the acquisition of Time Warner by AT&T failed despite seeming promising on paper, with AT&T struggling to merge distribution networks with content creation.
The CEO Confidence Conundrum
Why do smart leaders keep making the same mistakes? The research points to overconfident CEOs and boards who, despite substantial evidence to the contrary, imagine that a transformational acquisition can pull a company's profitability and stock performance out of the doldrums.
This suggests that acquisitions appear in many cases to be tenure insurance for CEOs—a way to demonstrate bold action and vision, regardless of actual value creation. The pressure to show growth, combined with the seductive narrative of "strategic transformation," creates a powerful cognitive bias toward deal-making. It’s also worth remembering that CEO’s are often affected by their own power – the point of forgetting that success in one set of circumstances doesn’t guarantee it in another.
A Different Path Forward: The Uncertainty-Informed Approach
The persistent failure rate of M&A suggests we need a fundamentally different approach—one that embraces rather than denies uncertainty. Instead of betting on synergy projections, leaders should:
Start with optionality over integration. Rather than immediate full integration, structure deals to preserve the ability to learn and adapt. The most successful acquisitions often maintain separate operations initially, allowing for gradual integration based on actual rather than projected synergies.
The Bottom Line
Mergers don’t fail because the leaders are incompetent, but because they're operating under the illusion that complex organizational change can be engineered through financial engineering. The real question isn't whether the Dick’s-Foot Locker deal will succeed—the odds say it won't. The question is when leaders will stop being seduced by the merger mirage and start building the patient, incremental capabilities that create lasting competitive advantage.
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