Street Smart

Vanity, egotism and fear: the three forces that get RBS-shaped deals approved

Most big takeovers destroy value for the buyer's shareholders. Vanity, empire-building and fear explain why. RBS and ABN Amro is the textbook case.

By James Beddington · May 17, 2026

This is the plain English explanation of why takeovers fail, told through the deal every UK investor still uses as a warning. Every disastrous takeover starts with a press conference where someone sounds confident, and the numbers stop mattering once a board has decided the deal is going to happen.

Reviewed by Sarah Okafor, Editor · May 17, 2026, 21:55

In this article

The Short Version

Why takeovers fail is one of the oldest questions in markets, and the answer is uncomfortable: most large deals destroy value for the buying company’s shareholders. The evidence is decades old, well documented, and the deals keep coming.
Three forces explain why: personal vanity at the top of the buyer, the desire to build a bigger empire, and the fear of being the company that gets eaten if it does not eat someone else first.
The advisers paid to assess the deal are also paid to make it happen. Their incentives push them in one direction only.
The Royal Bank of Scotland’s 2007 takeover of ABN Amro is the textbook case in UK markets. The same pattern still plays out today.

The evidence on M&A is uncomfortable reading

For three decades, study after study has reached the same conclusion. Around two thirds of large takeovers fail to create value for the buying company’s shareholders. The buyer pays too much, the promised synergies never materialise, or the integration takes longer and costs more than anyone admitted at the start.

This is not a new finding. Academic researchers, management consultancies, and investment bank strategy teams have all run the same analysis on the same kind of deal sample, and they have all arrived at the same answer. The shareholders of the acquired company tend to come out well, because they receive a premium for their shares. The shareholders of the buying company come out poorly, because that premium has come out of their pockets.

Boards know this. Chief executives know this. The advisers selling the deal know this. So why do the deals keep happening?

Force one: personal vanity

The first part of why takeovers fail is the simplest. Running a bigger company is more interesting than running a smaller one. The chief executive who closes the transformational deal becomes the chief executive who appears on the front of the business pages, who gets the keynote at the conference, who is invited onto the boards of the trade body and the governance committee.

This is not always conscious. The board may genuinely believe the strategic case. The chief executive may genuinely believe the integration plan. But the personal upside of being the deal maker is real, and it pushes the analysis in one direction. Anything that looks like strategic fit gets weighted heavily. Anything that looks like execution risk gets weighted lightly.

Force two: empire-building

The second reason why takeovers fail is structural. Across most large companies, executive pay tracks the size of the business. The bigger the revenues, the higher the pay band. The bigger the headcount, the larger the bonus pool. The bigger the market capitalisation, the more generous the long-term incentive plans.

Doing a deal that doubles the size of the company means the next pay review starts from a different number. The chief financial officer joins a different peer group. The board awards itself fees that match the new scale. None of this requires anyone to act in bad faith. The incentives are aligned with growth, and acquisition is the fastest way to grow.

The problem comes when growth and value creation drift apart. A company can buy itself bigger and poorer at the same time. The accounts will show the bigger half. The share price will show the poorer half.

Force three: fear of being the prey

The third reason why takeovers fail is fear. In sectors going through consolidation, the choice gets presented to boards as binary: eat or be eaten. A mid-sized bank watching its rivals merge starts to worry that it will be the one left without a dance partner. A regional supermarket chain watching the discounters expand starts to look for a deal that will give it scale to compete.

The argument has a logic. A larger company is harder to take over, and harder to dismantle. But the same logic produces overpriced defensive deals that destroy value just as effectively as overpriced offensive ones. The fact that a deal was rationally motivated by fear of takeover does not mean it earned its price.

Why the advisers do not stop it

If the evidence on why takeovers fail is so clear, why does no one on the deal team push back?

The answer is the fee structure. Investment banks earn their advisory fee only when a deal closes. Legal firms, accountants, due diligence consultants, and the financial PR agencies on both sides of the trade all bill heavily during the deal period, and bill less if the deal falls through. The retained advisers may have long-standing relationships with the company, but their economics depend on transactions completing.

None of this means advisers lie. It means the questions they ask come from a particular angle. Risks are noted, then framed as manageable. Concerns are recorded, then mitigated. The board paper that goes to the directors recommends the deal, with footnotes. The footnotes get less weight than the headline.

A Worked Example

The Royal Bank of Scotland’s 2007 takeover of ABN Amro is the case study Ian Lyall puts at the centre of the M&A chapter in The Street Smart Trader. It is worth knowing because all three forces were visible at the time, and because the result is exactly what the evidence on why takeovers fail would have predicted.

Sir Fred Goodwin led a consortium with Fortis and Santander that paid roughly £49bn for ABN Amro, then the largest banking takeover in history. RBS at that point was already the result of an aggressive acquisition strategy, having absorbed NatWest in 2000 and a string of smaller businesses since. The bank had been built by deal-making, and the deal-making had built Goodwin’s personal reputation as a hard-driving operator.

The competing Barclays bid for the same target raised the fear element. If RBS did not win ABN Amro, a major UK competitor would. The empire-building case had its own logic, since the Dutch bank brought meaningful global investment banking assets. The vanity element was the most visible: the press coverage of Goodwin in 2007 was relentless and admiring, and the deal completed only weeks before the credit crisis began to bite.

Within twelve months, RBS needed a £45.5bn UK government bailout. The bank was nationalised in all but name. Goodwin lost his knighthood in 2012. The corporate governance academic Scott Moeller, quoted in The Street Smart Trader, described the episode as a case of management hubris of historic proportions. The bank that emerged from the wreckage was eventually rebranded as NatWest in 2020, completing a circle that began with the original NatWest being acquired by RBS twenty years earlier.

It is worth saying that the deal was not approved by lunatics. The board had advisers. The advisers had spreadsheets. The shareholders voted in favour. Every formal check passed. The three forces did the rest. RBS is the cleanest UK answer to why takeovers fail, because every safeguard worked exactly as designed and the deal still wrecked the bank.

A more recent comparison

BHP’s April 2024 bid for Anglo American is a useful contemporary comparison. The Australian mining group offered around £31bn for the UK-listed producer in an attempt to become the world’s largest copper producer ahead of the energy transition. Anglo’s board rejected the offer, then rejected a sweetened version, then rejected a third approach, before BHP walked away on 29 May 2024. The way the deal was unpicked, briefed and walked back also illustrates the City news cycle that surrounds every major bid.

The deal had every classic ingredient. Empire-building was explicit: copper was the strategic prize and scale was the stated aim. Fear was visible: every major miner was looking at Anglo’s portfolio as a way of getting that scale, and BHP did not want to be the loser if someone else moved first. Vanity at the top was implicit but real: the chief executive who closes the deal that defines the energy transition becomes a different sort of figure in the industry.

The deal fell apart because Anglo’s board held the line on price and structure, and BHP could not justify going further within the constraints of the UK Takeover Code. That is the system working. It is unusual for it to work this cleanly. More often, the three forces win, which is why takeovers fail more often than the press releases admit.

What This Means For You

Understanding why takeovers fail changes how you read a deal announcement. When a large takeover gets announced, listen for which of the three forces sounds loudest in the press release and on the analyst call. A clean strategic case, with conservative numbers and a stated willingness to walk away on price, is rare. Most deals come with theatre.

Watch the share price of the acquirer in the days after the announcement. If it falls, the market is already telling you the deal does not stack up. That is useful information, even if you cannot put a number on the disagreement.

If you own shares in the buyer, the premium being paid is coming out of your pocket. If you own shares in the target, the premium is coming to you, and you generally have a choice between accepting the bid and holding on in case a better one arrives. Knowing which side of the deal you are on changes the question you need to ask.

In Plain English

Why takeovers fail comes down to incentives, not strategy. Most big takeovers fail to make money for the buying company’s shareholders, and the reason is not always bad analysis. It is often that the people deciding on the deal are not the people whose money is being spent. Ego, the desire to build a bigger company, and the fear of being acquired all push the answer in the same direction. The advisers paid to check the maths are also paid to close the deal.