Monday 18 January 2010

Merger and Acquisitions - What can go wrong?

What can go wrong?

 
The extent and the quality of planning and research done before the merger or acquisition deal is done will largely determine the outcome.  Thee are occasions when situations will arise that are outside your control.  It is worthwhile to consider the following situations and to prepare for them.

 
THE DEAL COULD FAIL OR PROVE TO BE VERY EXPENSIVE IF:

 
1.  Agreement cannot be reached on who should run the business in the case of a merger or, in the case of an acquisition, how long the previous management team will continue to remain involved.

 
2.  Word gets out in the press that you are interested in merging or acquiring a particular business and a "bidding war" breaks out in which other determined parties are interested in buying into the business.

 
3.  Your own business performance suffers because you have to spend too long on the deal and the transition stages.

 
4.  Key people in either organization leave because of uncertainty.

 
5.  The expected savings in costs do not materialize.

 

In 1999, the management group KPMG studied 700 mergers and acquisitions. Their conclusions found that:

 
  • 53% reduced the value of the companies.
  • 17% produced no added value.
  • Most "mergers" were acquisitions in disguise.

 
In 2003, a report issued by another group, Towers Perrin, indicated that there was a considerable increase in merger and acquisition activity, but surveys of companies concerned "still admit to a high failure rate."

 
  • 57% of "doomed deals" were caused by incompatible cultures in the companies involved.
  • In 42% of cases, a clash of management styles or egos was responsible for the failure.

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