Otto Steininger/Ikon Images
In 2015, Kraft Foods and H.J. Heinz merged in a $45 billion deal. Backed by Warren Buffett and 3G Capital, Kraft Heinz was poised to become a global food powerhouse. But just over a decade later, that promise has soured. Iconic brands have stagnated, strategic missteps have piled up, and the share price has tumbled about 60%, prompting the board to decide on a breakup (since paused by the new CEO).
At its core, this is more than a business story. It’s a cautionary tale about what happens when strategic logic collides with deep-seated cultural friction. Kraft’s brand-centric ethos clashed with 3G’s relentless cost-cutting model, which choked off innovation and eroded long-term value. Kraft Heinz may be headed for the same list of “corporate divorces” — such as Microsoft/Nokia, Unilever/SlimFast, and AT&T/Time Warner — that looked brilliant at the start but unraveled over time.1
Mergers and acquisitions are among the boldest bets leaders can make, with billions of dollars and personal reputations on the line. Yet failure is more common than most executives realize. Our large-scale analysis of thousands of deals made by S&P 500 companies over a quarter of a century reveals a sobering fact: Forty-six percent of all M&A deals are ultimately undone.2 And they don’t fall apart quickly: The average time from acquisition to divestiture is a full decade. In some cases, these years may include periods of growth or strategic learning, but in many, the gains are fleeting and outweighed by the long-run cost of unwinding the deal.
But the frequency of such splits isn’t the only concern — there’s also the cost. Our analysis shows that approximately 50% of divested deals do not add shareholder value, based on a comparison of purchase and divestiture prices. Failed deals also absorb leadership attention, damage credibility, erode morale, and can take years to unwind. In short, they’re not merely embarrassing — they’re expensive. Yet leaders often delay divestiture due to a mix of reputational risk and psychological bias, allowing value to leak out slowly over time.
Why do M&A deals have such a high rate of failure? Our research reveals two specific and predictable causes: either a poor initial fit, due to strategic misalignment or cultural mismatch, or unforeseen disruptions that arise well after the ink has dried.
Using the lens of behavioral finance, here we’ll explain how these predictable causes are driven by underlying psychological forces: cognitive biases, miscalibrated expectations, and flawed decision frameworks. These forces make some bad deals look attractive, cause leaders to ignore early warning signs, and delay divestiture even when the writing is on the wall. Many failures, in short, are not random — they’re behavioral in origin and diagnosable in advance.
Understanding which path a deal is on and why is essential to preventing a corporate breakup before it begins. That’s why we’ve developed a new diagnostic framework: the Corporate Divorce Matrix. This tool can help leaders pinpoint the specific risks any deal faces and make smarter, more enduring decisions at every stage of the M&A process.
The Surprising Scope of Corporate Breakups
Engaging in an M&A is often portrayed as a bold strategy to unlock growth, but the true cost of getting it wrong is greater than many leaders anticipate. Headlines celebrate splashy deals, but far less attention is paid to what happens when those combinations quietly unravel. Our research shows that nearly half of large U.S. acquisitions are eventually reversed.3 These are not isolated missteps. They represent a systemic feature of the M&A landscape that often leaves behind destroyed shareholder value, weakened strategic momentum, and lasting reputational damage.
Importantly, while the divestiture rate remains high, it has trended downward over the past few decades. Of the deals completed in the 1980s, 71% were eventually divested. That rate fell to 45% for 1990s deals and to 28% for those made in the 2000s. This decline may reflect improvements in due diligence and greater information efficiency in capital markets, which help acquirers make better-informed decisions upfront. But a less comforting possibility is that fewer CEOs are willing to admit failure, especially in today’s high-pressure, high-scrutiny environment.
One pattern is especially telling: Merger waves tend to be followed by breakup waves. When strategic discipline erodes, dealmaking spikes and the consequences play out years later. Our analysis shows that surges in M&A activity are consistently followed by elevated divestiture rates about a decade later. This cyclical pattern suggests not just overconfidence but also a herd mentality, where executives feel pressure to transact simply because their peers are doing so. The message for executives is clear: In overheated markets, the compulsion to strike a deal often overrides sound judgment, raising the odds of regret down the line.
The Two Paths to a Corporate Breakup: Why Deals Go Wrong
M&A deals don’t unravel randomly — they fail in patterns. Our research shows that most breakups follow either of two distinct paths. The key distinction is timing: Were the seeds of failure planted before the ink dried, or did things go wrong after the fact?
Path 1: The bad match — inadequate pre-acquisition due diligence. Some deals are flawed from the start. Acquirers often overestimate synergies, underestimate incompatibilities, and enter transactions with blind spots that prove fatal. This is especially common in diversifying acquisitions, where a company ventures into an unfamiliar industry and lacks the operational or cultural knowledge to assess risk properly. In our analysis, such deals have significantly higher divestiture rates.4 In contrast, mergers between companies in related or adjacent sectors, where leadership teams have greater visibility into strategic and operational realities, tend to hold up far better over time.
Consider Microsoft’s 2013 acquisition of Nokia’s handset business for $7.2 billion. The goal was to expand Microsoft’s presence in mobile hardware and challenge a market dominated by Apple’s iPhone and phones running on Google’s Android operating system. But the cultural and strategic gaps proved insurmountable: Microsoft’s software-centric enterprise culture clashed with Nokia’s legacy as a consumer-facing hardware company — one rooted in a national culture of consensus and risk aversion. About two years later, Microsoft wrote off almost the entire acquisition and laid off thousands of employees. It was a high-profile reminder that even deep pockets can’t paper over cultural misalignment.
Path 2: The good match gone bad — post-acquisition disruption. Other deals begin on solid ground but unravel when the external environment shifts. The most common driver of this outcome is a negative structural shock to the acquired company’s industry, such as a sharp downturn in employment, declining industrywide sales, or disruptive new entrants. In these cases, the breakup isn’t the result of poor judgment at the outset but rather a rational, strategic response to unforeseen challenges. What looked like a synergistic fit at the time of acquisition no longer holds in a changed context.
Consider Unilever’s 2000 acquisition of SlimFast for $2.3 billion. At the time, the deal made strategic sense: SlimFast was a high-margin, health-focused brand that complemented Unilever’s consumer portfolio and wellness ambitions. But consumer preferences shifted rapidly: Low-carb diets surged, and demand pivoted toward whole foods and high-protein alternatives. SlimFast’s growth faltered, and in 2014 Unilever sold the brand for much less than the purchase price. The breakup illustrates that a seemingly good match can unravel when a large acquirer struggles to pivot.
These two distinct failure modes — one rooted in faulty assumptions, the other in an organization’s inability to adapt to evolving circumstances — form the foundation of a practical tool for M&A decision-making: the Corporate Divorce Matrix. By mapping a deal’s risk profile along the dimensions of fit and disruption, executives can proactively diagnose whether their deal is on a path toward eventual breakup and what to do about it.
The Corporate Divorce Matrix: A Diagnostic Tool
Why do some deals unravel from within, while others fall apart under pressure? Our research shows that two dimensions — initial fit and post-merger disruption — account for most failed mergers.
The Corporate Divorce Matrix classifies M&A outcomes based on two critical dimensions of match quality:
- Initial match quality: How well aligned are the two companies in strategy, operations, and values?
- Post-merger environment: How stable or disruptive is the environment likely to be after the deal has closed?
Most failed mergers land in one of two categories:
- The doomed deal: This describes the classic diversifying acquisition, where the acquirer lacks deep understanding of the target’s industry. Our data shows that a low degree of industry relatedness is one of the strongest predictors of eventual divestiture.
- The unforeseen storm: This failure begins with sound strategic logic but falters due to events beyond management’s control. In our analysis, negative structural shocks, such as declining industry sales or employment in the target’s sector, significantly raise the odds of a future breakup.
The Corporate Divorce Matrix doesn’t just explain why deals fail — it equips executives to anticipate the type of risk they’re facing and prepare accordingly. Whether navigating a fragile match or bracing for market turbulence, leaders can use this framework to guide smarter dealmaking from the start.
Culture Isn’t Soft: Beyond the ‘Clash’ Cliché
When high-profile mergers fail, “culture clash” is the most convenient postmortem scapegoat.5 But as an explanation, it’s often frustratingly vague — a buzzword that acknowledges the problem without illuminating it. Leaders understand that culture matters, but too often, they lack the tools to measure or manage it with rigor.6 In some cases, they may fall prey to the false consensus effect — the assumption that others share their values and ways of working — leading them to overlook potential misalignments. This kind of cultural blindness can make integration challenges seem trivial on paper but explosive in practice.
To bring analytical clarity to this dimension, we conducted empirical research examining culture’s predictive role in M&A outcomes.7 We found that cultural awareness and cultural similarity are both important factors that are strongly correlated with deal longevity. Cultural awareness refers to the degree to which leadership of the acquiring company pays attention to matters of cultural fit, as measured by the acknowledgment of cultural factors in press releases issued at the time of each M&A deal. Cultural similarity refers to how alike the acquirer’s and the target’s home communities are in attitudes and norms, which we measured by developing a score that factors in ancestry groups in company headquarters’ ZIP codes and those communities’ values as outlined by the World Values Survey.
Culture, it turns out, acts as deal insurance. When the stock market initially reacts negatively to a merger and signals skepticism about its logic or execution, culturally similar companies are significantly more likely to weather the storm and avoid a breakup. In fact, our analysis shows that culturally similar companies are about 77% less likely to experience a post-merger divorce than those with deep cultural differences. When the market initially favors a deal, culture plays a smaller role.
For leaders, the implication is clear: Cultural similarity isn’t a soft, secondary concern — it’s a key factor with strategic consequences for M&A deals.
So how should leaders assess cultural fit before a deal? The exact approach may vary, but forward-thinking companies treat cultural due diligence as seriously as financial modeling. Some deploy structured diagnostics, such as McKinsey’s Organizational Health Index, to assess organizational norms. Others conduct leadership interviews, internal document reviews, or employee focus groups to surface unspoken values and assumptions.8
The point isn’t to find a perfect metric but to treat culture as a strategic factor that can extend the life of a deal, improve a merged company’s resilience to shocks, and even transform a shaky acquisition into a stable union.
The CEO’s Dilemma: Why Bad Deals Die Slowly
If a merger is faltering, why does it often take a full decade to unwind? Our research confirms what many executives suspect but rarely say aloud: A significant portion of corporate breakups are outright financial failures. We focused on market-based measures to assess this performance. Specifically, we found that when the divestiture price falls below the original purchase price — adjusted for inflation or stock market returns — it signals a value-destroying deal. By this benchmark, 43% to 58% of divestitures fail to create shareholder value. And yet few leaders acknowledge this reality publicly or act swiftly to cut their losses. This inertia reflects a powerful mix of behavioral bias and reputational risk.
Consider what behavioral finance has long shown about investors: People are reluctant to realize losses and thus hold on to underperforming assets too long. In our data, this same dynamic played out at the corporate level. We saw that leaders who champion a major deal experience loss aversion as well and delay reversing their decisions in the face of poor results, hoping that performance will rebound.9 The stakes are even higher in M&A deals, where CEOs must publicly defend their decisions and justify them to boards, investors, and employees.10
Even when the economic logic for divestiture becomes clear, the reputational cost of admitting defeat can be paralyzing. M&A deals are high-profile, high-judgment events, often backed by blue-chip advisers, consultants, and boards. That makes a reversal feel like a damning referendum on leadership. This dynamic is reinforced by face-saving behavior or self-serving bias, where leaders instinctively reinterpret past decisions in the most favorable light, reframing setbacks as “strategic pivots” rather than mistakes. It may explain why, in our analysis, the most common explanation, cited 48% of the time, was a generic “change in strategy.” In contrast, only 17% directly acknowledged poor performance or error.
How Bad Deals Finally Unwind
What, then, finally breaks the inertia? Sometimes, companies mask the loss by bundling a troubled asset with a more valuable one. Ford followed this playbook in 2008, selling its struggling Jaguar brand alongside the more desirable Land Rover to Tata Motors, offloading both for a fraction of their combined purchase price.
More often, though, the true catalyst is leadership turnover. Our analysis found that the likelihood of divestiture jumps from 3.6% to 14% when a new CEO takes the helm. Unburdened by personal investment in the original deal, and motivated to chart a new course, the successor is far more willing to cut ties and move on.
For boards, investors, and executives alike, the implication is clear: Overcoming deal inertia requires confronting both the emotional cost of realizing losses and the professional risk of appearing to be wrong. Awareness of these behavioral traps may be the first step toward faster, more rational decision-making.
Not every deal is built to last — and that’s OK. Mergers and acquisitions are ultimately a form of creative destruction. But by diagnosing risks early, quantifying cultural compatibility, and building in guardrails from the start, leaders can turn a high-risk gamble into a durable engine of growth. And when the deal no longer makes sense? The smartest move may be knowing when, and how, to walk away.