Are you being subjugated?17 July 2000
Are mergers and acquisitions the right way to succeed? Gemma Newman reports
Are mergers and acquisitions successful? It depends who you ask. According to Duncan Angwin from the UK’s University of Warwick Business School, the weight of consulting evidence suggests that at best, over 50% of merger and acquisition (M&A) deals fail. In fact, a 1999 survey from consultants KPMG, claimed that 83% of top, cross-border M&As fail, although 82% of respondents believed them to be successful.
With some of the major players in the hydro industry joining forces, it is hard for smaller companies not to feel like pawns in a corporate chess game. But although M&As look like a quick and easy way to gain success, many fail because ‘everyone is focusing on the wedding and not on the marriage’, says Angwin. The acquirer can become so obsessed with the deal, little attention is given to what happens next.
M&As can be successful if the acquirer overcomes the problem of linking pre-acquisition motives to performance. Some deals are driven by personal ambitions or concern that if a company does not jump on the M&A bandwagon, it will lose out. These deals inevitably end in disaster.
Angwin believes that fragmentation during the decision making and inte-gration process can also cause potential M&As to fail. Problems occur when advisors are brought in just to deal with the merger that have not been involved with the negotiations. They do not appreciate the full scope of the deal and lack knowledge about the history of the companies involved. Consequently, the wall between negotiations and the acquisition becomes more difficult to overcome and may result in a deal not being made or serious integration prob-lems after the acquisition has taken place.
Angwin thinks that these problems can be solved if the same advisors are involved with the decision making and integration process. The advisors are then in a better position to decide what is best for companies in the long term. It is even more advantageous if these advisors have a reliable knowledge of the company histories, as this will help them to decide which is the best post-acquisition management style to adopt for a particular economic situation. Angwin believes that corporate history matters, and that it is crucial to make a decision about management style early, not only from a technical point of view but also to reinforce certain behaviour patterns and discourage others. ‘Your post-acquisition integration style starts before the deal is done — day one is too late,’ he said.
There are four main management styles the acquirer can use; isolate, maintain, subjugate or collaborate (see panel for definitions). The style selected will determine whether value is created or captured.
When an acquisition is agreed, a decision needs to be made on how value should be created in terms of actual knowledge transfer between all parties involved. Is it possible to abstract knowledge or is it part of complex assets? What organisational conditions or structures are necessary to transfer this knowledge? It is essential that these questions are answered if the acquisition is to succeed. But the extent to which knowledge is transferred will depend upon the level of integration established by the management style.
The recipient of the knowledge must also be prepared to recognise the value of a practice, assimilate it and apply it to commercial situations. As well as being motivated and having a good relationship with the parent company, the recipient must also be reliable. This is another good reason for knowing your corporate history before signing a deal.
Despite the simplicity of Angwin’s suggestions, and the concern that only 50% of M&As succeed, a learning process is not happening. It is not clear why M&A success rates have not improved, given current knowledge and past experiences, but it is probably related to the integrity of published reports from consultants and the reluctancy of companies to swallow their pride and admit they failed. There are also ambiguities in the precise definition of failure, and ideas about what people actually set out to achieve from M&As. These are all issues which Time Business Communications in the UK is aiming to address in a report it is compiling. The report aims to allow companies to evaluate the positive and negative sides of M&As before they make a deal, and provide useful information about the decision making and integration processes in order to make M&As a success. It is scheduled for publication in October 2000.
|Post-acquisition management styles|
|Isolation acquisitions - little or no impact on the parent organisation - must set rapid, directive targets - high business risk/ low integration hazard - short time frame - highly focused change Maintenance acquisitions - establish how to protect acquisition - keep acquired management/ key talent - build understanding and learning - show an early display of support - low business risk/ low integration hazard - long time frame - piecemeal change Subjugation acquisitions - set up teams to coordinate and integrate. - identify transition structure - manage all employee expectations - high integration and business risk - short time scale - highly complex change Collaboration acquisition - organise acquisition protection at all levels - retain key employees - manage all employee expectations - high integration and business risk - long time scale - sequential change|