Prof. Bill Kaufmann, Faculty of M&A Integration, College of William & Mary's Mason School of Business and at Sum COX School of Business, Writes about why M&As can go bad, and why 75% of them actually Destroy Shareholder value for the acquirers. Co-Ordinated
During the past 40 years, I have been part of the merger and acquisition world in many different ways – both as an acquirer many times over, then being acquired once, plus teaching M&A Integration for the College of William & Mary’s Mason School of Business and at SMU Cox School of Business at the MBA level. Let me outline what I have observed and learned over the years.
WHY DON’T M&As WORK?
You can name a hundred reasons why M&As don’t or cannot work. I can name some going by what I have seen in first person. Here they are: (1) Inadequate due diligence: When too much emphasis is on the numbers and not other factors. One example is that of cultural synergy. Often you would find that in M&As which have failed, the acquirers have failed to integrate the cultures of the two companies. Daimler Chrysler was a good example of this. Conflicting corporate cultures is perhaps the most destructive of all the reasons why two companies don’t “fit”; (2) Lack of a compelling strategic rationale: The key word is compelling. As I mentioned before, some companies go ahead for an acquisition or a merger even if they find no real strategic sense in the deal. This is not right; (3) Unrealistic expectations of synergies: Top management oversells the value of the combination. And the acquiring firm ends up paying too high a premium, often much more than can be achieved through various synergies. Paying too much is a problem, and this happens especially when there is a bidding war between two egos; and (4) Failure to move quickly enough to meld the two companies: This creates uncertainty in the workforce.
WHY DON’T M&As WORK?
You can name a hundred reasons why M&As don’t or cannot work. I can name some going by what I have seen in first person. Here they are: (1) Inadequate due diligence: When too much emphasis is on the numbers and not other factors. One example is that of cultural synergy. Often you would find that in M&As which have failed, the acquirers have failed to integrate the cultures of the two companies. Daimler Chrysler was a good example of this. Conflicting corporate cultures is perhaps the most destructive of all the reasons why two companies don’t “fit”; (2) Lack of a compelling strategic rationale: The key word is compelling. As I mentioned before, some companies go ahead for an acquisition or a merger even if they find no real strategic sense in the deal. This is not right; (3) Unrealistic expectations of synergies: Top management oversells the value of the combination. And the acquiring firm ends up paying too high a premium, often much more than can be achieved through various synergies. Paying too much is a problem, and this happens especially when there is a bidding war between two egos; and (4) Failure to move quickly enough to meld the two companies: This creates uncertainty in the workforce.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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IIPM: Indian Institute of Planning and Management
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
