Mergers and Acquisitions(background)

Prof Scott Moeller

Tailored learningCass Executive Education bespoke programmes

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M&A Volumes go in Waves… and we're now on the downward slope

Source: Thomson Financial

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Most acquisitions historically have been failures…

1987 McKinsey 116 acquisitions 61% failed

. Porter 56% of all acquisitions get sold off

1996 Mercer/ 150 deals 57% failure rate, Business Week 30% had 'substantial' losses

. Economist 150 acquisitions 70% failed to meet expectations

. McKinsey 160 acquisitions Only 12% accelerated their growth

1997 Sirower 168 mergers Only 20% return in 4 years

1998 A. T .Kearney 115 mergers 58% added no value

1999 McKinsey 77% fail to yield expected synergies

2001 KPMG 118 acquisitions 70% created no value / 31% destroyed value

2004 BCG 277 deals 64% destroyed value for acquirers’ shareholders

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Why do M&A deals fail?

Rank Top 10 Pitfalls in Achieving SynergiesNegativeImpact

Note: Survey of Forbes 500 CFOs. Assessed on a scale of 1 to 7, where 7 is high.

1 Incompatible cultures 5.60

3 Unable to implement change 5.34

5 Did not anticipate foreseeable events 5.14

7 Acquirer paid too much 5.00

9 Need to spin off or liquidate too much 4.05

2 Inability to manage target 5.39

4 Synergy non-existent or overestimated 5.22

6 Clash of management styles/egos 5.11

8 Acquired firm too unhealthy 4.58

10 Incompatible marketing systems 4.01

Blue – Non CFO – CFO survey

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M&A Paradox

Most mergers fail, but few companies succeed without acquiring or merging.

– Can you be a large organisation without having made acquisitions? – Is organic growth sufficient to become a leading player?– Is there a 'best time' to make acquisitions?

Management’s challenge:

'How can you reconcile the low odds of deal success with the need to incorporate mergers into the growth strategy.'

Or today…

'How to make deals successful NOW when the market's going down?'

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The current merger wave is different…

1987 McKinsey 116 acquisitions 61% failed

. Porter 56% of all acquisitions get sold off

1996 Mercer/ 150 deals 57% failure rate, Business Week 30% had 'substantial' losses

. Economist 150 acquisitions 70% failed to meet expectations

. McKinsey 160 acquisitions Only 12% accelerated their growth

1997 Sirower 168 mergers Only 20% return in 4 years

1998 A. T .Kearney 115 mergers 58% added no value

1999 McKinsey 77% fail to yield expected synergies

2001 KPMG 118 acquisitions 70% created no value / 31% destroyed value

2004 BCG 277 deals 64% destroyed value for acquirers’ shareholders

2006/7 Cass / Towers Perrin 1,400 acquisitions ‘Only’ 47% destroyed value since 2003

2007 McKinsey 1,000 deals 58% overpaid since 2003…but since 2003 deals created value

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And 2008 looks to be even better!

Short term Shareholder Return

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What has changed in the past several years?

Get Culture Right

ImprovedDeal

Selection

Razor SharpFocus on

Integration

Drivers

Most organisations are now far more disciplined and focused in their transactions than ever before.

In particular, we have noted, and confirmed by live interviews, the following recurring themes:

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Three essential Components to a Merger Deal

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M&A: The Seven Deadly Sins

Source: financialworld.co.uk, March 2007

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Good and bad reasons for doing deals

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Criteria for Target Assessment

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Alternatives to M&A

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Total Deal Cost

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Public Deals: 6 Step Process

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Simplified Deal Process

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Due Diligence

‘Know thy enemy and know thyself; in a hundred battles you will never be in peril.’

Sun Tzu 400-320 BC

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Due Diligence Key success factors

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Post Merger Integration

‘A wise person once said that a beautiful marriage is one in which two people become one. The

trouble starts when they try to decide which one.’

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Change or Preserve?

High

HighLow

Change in Target

Change in Acquirer

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Focus of Integrations

Source: Mergermarket / CMS Cameron McKenna, Feb 2007

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LEARN CIA principle

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Poor communication (use of "killer" phrases)highlights poor underlying strategy

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Two related "killer" phrases

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More communication indicators of poor implementation

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Summary: Key Success Factors in Post-Merger Integration

Mergers and Acquisitions