Webcast originally aired on Tuesday, January 24, 2017
The majority of company mergers fail to add shareholder value after the deals are completed, according to KPMG. And that means executives need to plan properly for these corporate marriages and to follow up afterward or risk seeing their buyout end up in this growing graveyard of failed deals.
The key is not only to get the proper advice from outside experts but also to ensure that the C-suite and board of directors stay engaged in the process before and after the two companies join together.
What the research says:
KPMG conducts research into mergers approximately every two years. The results show that what was true in past years remains accurate today. That is, only about one-third of mergers, acquisitions and takeovers add value in North America while almost 70 percent actually reduce shareholder worth or, at best, are neutral.
Importantly, however, these negatively valued deals do not necessarily shrink the value of the merged firms. But the share gain – while in many cases positive – is less than the expected increase if the two entities had not joined forces.
Looking at 32 percent of the deals that where shareholder value was eroded (37 percent saw no change in valuation), one-third of that loss happened before the arrangement was consummated, perhaps through a lack of proper due diligence or a poorly valued target.
Fully 66 percent of the depletion occurred after the two sides had reached an understanding.
What executives say:
The senior people at companies that were involved in these failed deals cited various reasons for the bad result.
Executives said they should have mapped out a strategy in more detail prior to launching the merger or takeover. That process could have uncovered unseen risks faster and addressed other issues.
Next on the ‘not-to-do’ list was the lack of a fulsome integration approach and not defining what a successful merger would look like in terms of targets and corporate structure.
Executives also pointed to an inadequate focus on value creation as opposed to just getting the deal done as a problem. Finally, executives saw a gaping inability to keep key personnel and get the two corporate cultures to work in unison.
Interestingly, while these executives noted certain problems, the same senior men and women said they would have addressed different issues if they could take a mulligan on the merger.
True, 19 percent of senior folks said they would start the planning process earlier and in more detail. But, 17 percent of executives indicated they would attack the problem of two organizational cultures more aggressively.
Also, despite many officials pointing to the lack of attention paid to valuation creation, only four percent of executives said they would have pushed for a better price for the acquisition.
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