M&As not delivering value

2006

Fewer than half of mergers and acquisitions achieved their hoped-for cost-savings and barely half deliver their expected revenue or value, according to a new survey of U.S. and European corporate executives published by Accenture.

The survey of more than 400 U.S. and European corporate executives found that only 45 per cent believed that their most recent deals achieved expected cost-saving synergies and only 51 per cent achieved expected revenue synergies.

The survey also highlights particular problems with IT integration in M&As, most notably in cross-border transactions.

With more than half (58 per cent) of these recent deals crossing borders, only 30 per cent of the executives questioned felt that they had achieved successful IT integration.

"Missing synergy goals by even a small percentage can mean losing hundreds of millions of dollars of shareholder value," said Art Bert, from Accenture's Strategy practice.

"The most successful deals are approached with a comprehensive integration plan, with core team continuity through most of the transaction life cycle, from target identification, valuation, due diligence, deal execution, pre close planning, and post-closing integration."

Roughly half of the executives questioned by Accenture expect companies in their industries to make cross-border acquisitions over the next five years in order to guarantee profitability and hit strategic corporate targets, while about a quarter expect deals to be undertaken merely to survive.

But at the same time, most acknowledge the problems involved in these deals. More than seven out of 10 believe that cross-border M&As are more difficult than domestic transactions.

"There is a growing body of evidence that most large transactions fail to create shareholder value for acquirers," Bert said.

"But what makes M&A so alluring is the less common, successfully executed deal that allows an acquirer to create shareholder value far beyond what its peers and competitors can achieve.

"This is why we see most high-performing companies undertaking a disproportionate number of deals relative to their industry peers."

When asked how much revenue growth would come from M&A transactions in the next three years, nearly a third (30 per cent) of the executives said they expect the growth to be 20 per cent or more. Meanwhile, almost nine out of 10 said they expect at least some of their firms' growth would come from acquisitions.

One encouraging insight from the study was that most executives think their companies did a good job with employee retention and customer relations during their most recent transactions.

A large majority agreed or strongly agreed that valuable employees were retained from both the target company and the acquiring company. Most also agreed that their deals had no negative impact on customers of the target company.

"M&A remains a vital strategic tool for corporate executives worldwide," Bert said. "Yet management teams must not be misled into thinking that deal closing is a prize, in and of itself.

"Rather, evaluating and integrating an acquired business in a manner that delivers a superior return on investment, demonstrating that a transaction is really the best use of shareholders' money, is what sets a good deal apart from a bad one."