Goheal: Why Half of Cross-Border M&As Fail—Do You Get the Real Motives?

"He who knows others is wise, he who knows himself is clear; he who defeats others is powerful, he who defeats himself is strong." This sentence can probably be changed to "Seeing others clearly is insight, seeing yourself clearly is wisdom." Especially for the "high-risk + high-narrative" combination of cross-border mergers and acquisitions of listed companies, what can really win is not financial skills, but motivation.

You may have heard these sentences:

"We are interested in the target's AI genes, blockchain capabilities, and metaverse layout..."

"This merger and acquisition will help us move from manufacturing to technology, from channels to platforms..."

"After the integration, it will achieve a synergistic multiplier effect, form a closed-loop ecosystem, and improve profitability..."

Does it sound familiar? Very skilled? It's very similar to the live broadcast of Double 11 that year?

But the real situation may be: a few years later, goodwill explodes, the main business is lost, the controlling rights are shaken, and even ST delisting.

American Goheal M&A Group

1. Here comes the question: Why do so many cross-border mergers and acquisitions die on the road?

Goheal research data shows that in the past five years, more than 52% of the A-share "cross-border M&A" projects have experienced restructuring failure, goodwill impairment or market doubts within three years of the completion of the M&A, and some projects have even directly backfired on the parent company's main business.

This is not accidental, but the inevitable result of misplaced motivation.

In the eyes of many listed companies, M&A is no longer just a strategic tool, but has become a market value stimulator, financial cosmetics, inquiry avoidance tool, and even a "major shareholder's unwinding artifact."

And you, as an investor, really understand their motives?

2. Some M&A are not strategies, but "capital anesthetics"

When looking at a M&A case, the easiest thing to be deceived is precisely its most superficial layer: grand narrative.

"We want to build an intelligent manufacturing platform", it sounds very exciting;

"We are cutting into the digital medical track", it looks very trendy;

"We are targeting the key links of AI training computing power", it sounds very hardcore.

But just take a light look at the underwear: Who is being acquired? Is the main business reliable? Are historical customers stable? Is the profit model mature? Is the core technology self-developed? Is the acquisition method cash or stock exchange? Is there any pressure from the major shareholder to pledge?

The truth is often sad.

Goheal once participated in the due diligence of a "hottest" project: a traditional clothing company announced the cross-border "Web3+Cultural Tourism" in a high-profile manner, and acquired a "Metaverse Content IP Incubation Company", claiming that it could create digital clothing shows, AR guides and immersive performances in the Metaverse. The information looks cool and there are two words "future" on every page of the PPT.

But the truth is that the company's annual revenue is only 2.2 million, with less than 10 employees, 4 of whom are temporary workers. The so-called "content IP" is nothing more than a purchased virtual template shell, and even the blockchain is just a call to a third-party interface.

Half a year after the acquisition was completed, the project was suspended, the management was in internal strife, and investors defended their rights... The stock price was cut in half from the high point.

You think the company is transforming and upgrading, but in fact they are just using mergers and acquisitions as "capital anesthetics", which can relieve pain in the short term and make it terminally ill in the long term.

3. The real motivation is never written in the announcement

Announcements are stories that investors see; while motivations are often hidden in the details in the corner.

We have summarized a "Goheal motivation deconstruction method" in actual combat: if the logic of the merger and acquisition is not clear internally and is said too much externally, it is worth being vigilant.

Once, Goheal assisted in analyzing a merger and acquisition case in which a pharmaceutical company crossed over into education technology. The announcement was written in a grandiose manner, with the reason being "to build a universal health + education integration ecosystem", which almost sounded like a description of an ideal city in the new era.

But after sorting out the company's financial data, we found that it had just completed a round of debt extension, and the bank required it to "restructure its main business and expand its growth points"; at the same time, the controlling shareholder's pledge ratio was as high as 86%, and it urgently needed to increase its valuation to obtain refinancing space.

What about the target company? Its main business is an online education content provider, and its net profit is driven by purchases from affiliated companies every year.

So, the real motivation for mergers and acquisitions is actually three sentences: to ensure financing for the main business, to maintain market value, and to maintain its controlling position. It is difficult to say that this is illegal, but there is no doubt that such mergers and acquisitions have strong capital operation attributes rather than industrial synergy intentions.

So, if you find that a company crosses borders very quickly and tells a beautiful story, but lacks a specific implementation timetable and business integration roadmap, don't rush to like it. Please ask yourself first: Is this motivation reliable?

4. Mergers and acquisitions are not a panacea. If the motivation is wrong, everything will be lost.

There is a saying in the investment circle: "Acquisitions are gambling, but the gamblers don't pay their own money." This sentence sounds cruel, but in the circle of listed companies, some people do regard mergers and acquisitions as a kind of "zero-risk arbitrage."

Especially those companies with long-term sluggish market value, cold main business, and limited refinancing are most likely to have the impulse of "stimulating the secondary market with mergers and acquisitions."

So you will see that the K-line of some mergers and acquisitions is extremely neat: abnormal movement the day before the announcement, the acquisition news is released, and then the major shareholder's "reduction announcement" is relayed on, and finally it ends with "no transaction", which can be called "performing well and then trapping".

But this game will not last long, because motivation is the core vitality of the transaction. Once the purpose is impure, the integration will be chaotic, the team will be scattered, and the goodwill will be ruined.

We at Goheal have found in many years of practice that only mergers and acquisitions with three "sincerities" can go far:

Goheal Group

Sincere belief in industry trends: not riding on the hot spots, but true integration; sincere recognition of the acquired party: not only reasonable valuation, but also cultural compatibility; sincere determination to implement integration: immediately organize resource docking, personnel deployment, and system coordination after the merger and acquisition.

Otherwise, it is better not to merge and acquire.

5. "Strategic upgrade" or "market value game"? You have to see through

Have you noticed that some companies are particularly prone to acquisitions when their market value falls below the red line? Some management suddenly launched a "transformation plan" before the restricted sale is about to be lifted? Some fixed increase immediately threw out a few "strategic investments" after the approval?

These are not accidental, but the motivation under the instrumentalization of capital.

Mergers and acquisitions are "industry logic" on the surface, and behind them are the intersection of "capital motivation" and "valuation logic". If investors only look at the appearance and do not know the motivation, they will easily be led by "pseudo-synergy", "pseudo-strategy" and "pseudo-high growth".

Goheal recommends that investors and entrepreneurs do at least three things when facing M&A information:

See the transaction structure clearly: the lower the cash payment ratio and the more complex the gambling terms, the higher the risk; identify key motivations: whether the management has an urgent need for financing or reduction; dig deep into business matching: whether the main business matches, whether the talents can be retained, and whether the system can be integrated.

Don't let "good talk" cover up "unreliable".

6. Write at the end: Next time you see a merger and acquisition, please ask three questions first

"Does this merger and acquisition really help the main business synergy?"

"Is this transaction for users or for major shareholders?"

"If there is no merger and acquisition, can the company still develop steadily?"

If there is a trace of hesitation in the answers to these three questions, please be more careful.

Mergers and acquisitions are a double-edged sword. If used well, it is a leap; if used badly, it is a burial.

In this article today, we did not talk about skills, but only about the heart. I hope you can take a closer look at the background, finances and motivations before the next M&A announcement pops up, so as to avoid investment detours.

What do you think of the real motivations of cross-border M&A at present? Have you ever been cheated by "pseudo M&A"? Welcome to share your views and stories in the comment section.

We, Goheal, are always willing to be your calm observer and professional companion on the road of M&A. See you in the comment section, let's talk about the truth.

[About Goheal] Goheal is a leading investment holding company focusing on global M&A holdings. It is deeply engaged in the three core business areas of acquisition of listed company control, M&A and reorganization of listed companies, and capital operation of listed companies. With its deep professional strength and rich experience, it provides enterprises with full life cycle services from M&A to reorganization to capital operation, aiming to maximize corporate value and achieve long-term benefit growth.