The combination of cheap financing and expensive stocks makes this an attractive time for dealmakers, but investors have to be more cautious about mergers and acquisitions (M&A) that too often end up as value destroying disappointments.

“The open secret about M&A is that most deals fail to generate the synergies companies expect when they announce a merger,” write Laura Miles, Adam Borchert, Alexandra Egan Ramanathan for Bain & Company. “Most merging companies entering a deal don’t have a clear understanding of the level of synergies they can expect through increased scale. They typically make broad estimates based on prior deal announcements, without considering whether the cost structure of the combined entity is realistic.”

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M&A: 70% ignore industry trends in their estimates

In a survey of 352 global executives overestimating synergies was cited as a major cause behind failed mergers by 55% of respondents, the second most common factor after poor due diligence, but this is because dealmakers practically ignore industry trends. By comparing the cost structure of 22,000 different companies, Bain constructed major industry scale curves as a benchmark for M&A synergy gains. For instance, if two $100 million companies with industry-average cost structures merge, taking the industry-average cost structure for a $200 million company is a good starting point to estimate gains. But that’s not what actually happens.

“We found that across most industries we analyzed, on average 70% of companies announced higher synergy estimates than would be expected just by companies get­ting bigger,” write Miles, Borchert, and Ramanathan.

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Successful M&A have a detailed deal thesis

Successful mergers are marked by the specificity of the deal thesis, which identifies specific benefits down to the function (eg accounting, HR) or sub-function (tax, treasury) level. Companies that are able to set out where they expect to find synergies tend to outperform what you would expect from industry scale curves. The Bain report also finds that management teams behind successful mergers user multiple benchmarks to find opportunities, comparing both the total cost for field human resources and the HR employees-per-field headcount to industry leaders, for example.

Finally, since M&A deals necessarily shake up the way everyone goes about their business it can be the perfect time to implement other reforms and cost-cutting measures, but it’s important not to confuse optimization and integration.

“For integration, the focus is on making sure the businesses come together seam­lessly and don’t miss a beat in performance—teams’ missions and metrics are tailored to that objective,” they write. “When the goal is optimizing, teams are given more aggressive cost targets and benchmarks for where the potential savings are likely to reside.”