Installation with Existing Database Fails

We're installing SCVMM 2012 R2 and upgrading an existing 2012 R2 CU4 database. The installation fails after running for about 30 minutes with these lines in the SetupWizard.log
03:53:43:Failed sql script: Threw Exception.Type: Microsoft.VirtualManager.DB.CarmineSqlException, Exception.Message: Unable to connect to the VMM database because of a general database failure.
Ensure that the SQL Server is running and configured correctly, then try the operation again.
03:53:43:StackTrace:   at Microsoft.VirtualManager.DB.SqlRetryCommand.ExecuteNonQuery()
   at Microsoft.VirtualManager.Setup.DBConfigurator.ExecuteScript(SqlContext ctx, String fileName)
03:53:43:InnerException.Type: System.Data.SqlClient.SqlException, InnerException.Message: Incorrect syntax near 'MERGE'. You may need to set the compatibility level of the current database to a higher value to enable this feature. See help for the SET COMPATIBILITY_LEVEL
option of ALTER DATABASE.
Must declare the scalar variable "@error".
Must declare the scalar variable "@error".
03:53:43:InnerException.StackTrace:   at System.Data.SqlClient.SqlConnection.OnError(SqlException exception, Boolean breakConnection, Action`1 wrapCloseInAction)
   at System.Data.SqlClient.TdsParser.ThrowExceptionAndWarning(TdsParserStateObject stateObj, Boolean callerHasConnectionLock, Boolean asyncClose)
   at System.Data.SqlClient.TdsParser.TryRun(RunBehavior runBehavior, SqlCommand cmdHandler, SqlDataReader dataStream, BulkCopySimpleResultSet bulkCopyHandler, TdsParserStateObject stateObj, Boolean& dataReady)
   at System.Data.SqlClient.SqlCommand.RunExecuteNonQueryTds(String methodName, Boolean async, Int32 timeout, Boolean asyncWrite)
   at System.Data.SqlClient.SqlCommand.InternalExecuteNonQuery(TaskCompletionSource`1 completion, String methodName, Boolean sendToPipe, Int32 timeout, Boolean asyncWrite)
   at System.Data.SqlClient.SqlCommand.ExecuteNonQuery()
   at Microsoft.VirtualManager.DB.SqlRetryCommand.ExecuteNonQuery()
03:53:43:VMMPostinstallProcessor threw an exception: Threw Exception.Type: Microsoft.VirtualManager.Setup.Exceptions.DatabaseConfigurationException, Exception.Message: The Virtual Machine Manager database can not be upgraded.
The Virtual Machine Manager database SCVMM2008Prod was not upgraded. Try a new database and run Setup again.
Has anyone seen this before? The SQL is remote but is reachable.
Orange County District Attorney

We have to dig deeper on this one. Can you check the SQL errorlogs for related information?
You must verify that the databases is working, have enough space, is healthy etc.
The logs should tell you if everything is allright.
-kn
Kristian (Virtualization and some coffee: http://kristiannese.blogspot.com )

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