July 2014 Chairman's Message: Does Practice Make Perfect in M&A?

Recent quotes from top consultancies:

“83% of Mergers Fail to Achieve Announced Expectations”
“50% of Mergers Fail to Earn the Cost of Capital”

“70% of Mergers Fail to Achieve Post Merger Revenue Synergies”

Yet,
These same large consultancies are involved in over 40% of mergers.

The truth today is:

“Most companies which have multiple cycles of integration DON’T succeed more often than companies completing their first merger or acquisition” and, there are equal numbers of failures in companies who integrate themselves or use large outside consultants.  In both cases, bad repetitions create bad habits that generate more bad results.

When you talk to consultants, they quickly inform you that over 80% of mergers fail to achieve the announced expectations and probably 50% or more don’t even earn the cost of capital.  The reality is that the true results are probably even worse, given that most companies do not, and won’t, perform a thorough post mortem around the value gained or lost during the integration phase of their mergers.  And if they did, they certainly wouldn’t publish the results, would they? 

If companies did study the final results from their merger as compared to their initial announcement, they would probably stop pursuing transactions until the problem was repaired.  In the transactions where we do know results after full disclosure, nearly all failed to create anywhere near the anticipated value.  The true reason is, in every case, that the integration was treated as an afterthought and not as a primary driver of value. 

Companies are good at structuring and closing the deal…not good at completing it.  In almost every instance studied, senior management placed the vast majority of effort on structuring, negotiating, funding, and closing the deal.  They then threw it over the wall to be caught by the operating executives (now responsible for managing the 2x new company, the integration, AND a team of outside consultants).  Repeating past performances will not improve results unless the performances are based on solid, proven practices utilizing the required tools.  Only “best practice” make perfect!

THE GOOD NEWS: The true and direct answers to delivering the promised value to your stakeholders are about to be revealed when we release the exhaustive study The State of M&A Integration Effectiveness 2014 in early September.  This collaborative study between the Leadership Council and M&A Partners was based on survey data from over 150 M&A executives from some of the best and most active acquirers. Perhaps for the first time ever, this research will not only isolate the best practices, but more importantly, the probable impact of each practice when utilized…. What works and what doesn’t.

Stay tuned for more information and an announcement coming in next month’s M&A Monthly.

Until then,

Jim