We all know that M&As tend to destroy value more than they create value.  But Boards approve M&As anyway!


What can be done to reduce these risks?


Art Williams has some interesting observations.






By Arthur Williams




The Facts:


Data generated by mergers for S&P firms between 1995 and 2001 indicate that of the total mergers concluded, almost 65% of these mergers actually destroyed value for the investors within the first 24 months. Furthermore, 80% of the mergers failed to produce the promised return of the original expectations.


            THE CASE FOR M&A


Despite these low success odds, thoughtful and experienced CEOs will recommend M&As to their Boards.  Why?


All of the acquired assets, technologies and talent can be developed internally given time. The basic answer is TIME. In time markets move on, in time investor expectation rise, shareholders demand better results and time is running out.  An acquisition speeds up the process.


In addition, aggressive acquisitions speed up the time required to achieve a dominant market position.


            What is Management’s Plan for Managing M&A Integration?


Within the same data above, 62 % of mergers that met the original expectations, had

a written and implemented post merger integration plan.


Guidelines to reduce risk using a Post Merger Integration plan:

Sensitivity to the lessons in due diligence, focus on the strategy, timed to be completed in the first quarter and communication at a personal level are four of the most important components of a plan. Making the acquired parties part of the integration team, sends an important cultural message. Broadcast that message of their being involved and recognized for their value in ensuring the synergies are realized. Keep it personal.


What is the Schedule for Us to Review Plan Implementation Within the First Hundred Days?


The minute your integration plans drifts off schedule a review is needed. Studies indicate that integration plans drifting past the first 100 days causes employees, both old and new to wonder what is going on. Delays feed rumors and create deep anxiousness. Management credibility erosion soon follows. You must let the people know where they stand so they want to get back to work. 


Do We Have the In-House Competence To Implement the Post Merger Plan?


It is natural for executives who have gone through at least one M&A experience to consider themselves experts.  And those who manage the M& integration have far more political power than those internal executives who are being managed through the M&A integration.  The Board should expect that in-house executives would thus have a bias for using in-house staff.


Does this make sense from a Board perspective?


Experiencing one M&A or experiencing multiple M&As using one method does not provide in-house staff broad perspective.  Would a broad perspective be of value in this situation?  In-house staff may think of itself as impartial.  But will it be perceived to be impartial by those who have been acquired? If the CEO has previously assured the Board that staffing levels are currently lean, how will in-house executives find the time to manage M&A integration without compromising core customer service?


There are times when a specialty firm in M&A integration might be more appropriate than using in-house resources, given the shareholder risks involved. 



Arthur Williams, CEO

Entrepreneurial Resources Group

                                                                                    8 Faneuil Hall, Boston, MA.



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