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MERGERS & ACQUISITIONS: SUCCESS AND FAILURE

Background

The M&A process can be separated into distinct stages of which the key steps are: carrying out a detailed due diligence; undertaking post-merger planning; closing the deal; and post-merger integration. Integral to the success of the M&A process is the conduct of a thorough due diligence which, as indicated by Reed, Lajoux, and Nesvold (2007), is influenced by the status of the firm in the community.

Hartzell (2010) suggested that a successful M&A deal is dependent upon the following actions: conduct of a readiness assessment; constituting the right team to manage the M&A process; leveraging technology to facilitate thorough due diligence and accelerate time-to-market; and initiating early planning for the post merger integration phase. The research on M&A’s confirmed that the factors responsible for successful post merger activity are: strategic motivation leading to network efficiencies and synergies; clear relation to core business; economic pricing; prudent cash- or debt-based financing; and efficient integration planning.

Objectives

After my discussion, supported by the video, you will:
• Understand the steps in the M&A process and the key role of due diligence
• Appreciate why M&A’s succeed or fail
• Gain awareness of the key success indicators
• Appreciate the requirements for achieving post merger success
• Be able to assess a company’s readiness for a M&A deal through key questions

Discussion of Training Video

The training video seeks to concisely present: the success rate in M&A deals; the metrics used for measuring success; the reasons why deals fail; the post merger integration issues; and the key issues for companies to consider. The evidence reported by M&A practitioners is that deals record a poor 30 percent success rate. Success is measured by: rate of shareholder return; rate of growth in revenues and turnover; rate of growth in margins; increases or decreases in leverage as reflected on the balance sheet; impact on brands and sales; and the rate of business retention.

The reasons for deal success or failure are: sellers have unrealistic expectations of the deal which affects price negotiations; the buyers do not commit to thorough due diligence in the early stages; differences of opinion between buyers and sellers over contractual points; and the effectiveness of post integration planning. The video establishes that deals fail mainly in the post merger phase because of: inadequate efforts at linking the two cultures; indecision on who is going to manage each business and which products/services are to be retained or discarded; the assumption that closing the deal represents success; and insufficient importance, resources and time assigned to post merger activities.

M&A practitioners advise that, in order to assess readiness, the following questions be posed to companies about to engage in a merger process: Did the due diligence process confirms the acceptability of the target acquisition and was an outside attorney used? Was the due diligence process started early or was it rushed? Was the integration planned or is the traditional 100-day plan offered as the answer? Was the responsibility for post merger integration follow up identified? If the answers to these questions are not positive and realistic, the company may not be ready for an M&A undertaking.

Instructor’s Comment

Because of the low success rate of M&A’s of approximately 30 percent, executives who propose to engage in a merger process must accept that a detailed due diligence process is compulsory and a proper post merger integration plan must be formulated.

Summary of Video

The training video adequately covers the key areas of importance in M&A activity emphasizing the reasons for deal success or failure and concluding with a question guide to be used to assess the readiness of a company for pursuing a M&A process.

References

Hartzell, P.F. (2010, April). Maximize your next M&A deal. Mergers and Acquisitions, 45(4),
46-47. Retrieved from http://proquest.umi.com/pqdweb?did=2022262711&sid=3&Fmt=3&clientId=83181&RQT=309&VName=PQD

Reed, S.F., Lajoux, A.R. & Nesvold, H.P. (2007). The art of M&A: A merger acquisition buyout
guide (4th ed.). New York: McGraw-Hill.

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