Mergers And Acquisitions
Failing To Achieve Value

June 23, 2006 - Mergers and acquisitions (M&As) continue apace but many deals fail to create expected value, according to a recent survey by Accenture and the Economist Intelligence Unit. The survey of 420 corporate executives from the United States, Germany, the United Kingdom, Sweden, Norway and Finland conducted in March 2006 also found that over half of recent deals in which respondents had been involved were cross-border transactions.

Less than half (45%) of respondents thought that their most recent M&As achieved expected cost-saving synergies, while even fewer (30%) said they had been able to successfuly integrate IT systems in their most recent cross-border deal. Also, almost a half (49%) said their deals did not achieve expected revenue synergies.

"Missing synergy goals by even a small percentage can mean losing hundreds of millions of dollars of shareholder value," said Art Bert, a senior executive in Accenture's Strategy practice. "The most successful deals are approached with a comprehensive integration plan, with core team continuity through most of the transaction life cycle, from target identification, valuation, due diligence, deal execution, pre close planning, and post-closing integration."

58% of executives involved in a recent deal said their company's latest acquisition was a cross-border transaction. Around one half of respondents to the survey expected businesses in their industries to make cross-border acquisitions over the next 5 years. The following reasons were given:

• To guarantee profitability (55%)
• To hit strategic corporate targets (49%)
• Just to survive (26%)

Almost three-quarters (70%+) of senior executives considered that the identification and execution of cross-border M&As was more difficult than domestic transactions.

According to Art Bert:

"There is a growing body of evidence that most large transactions fail to create shareholder value for acquirers. But what makes M&A so alluring is the less common, successfully executed deal that allows an acquirer to create shareholder value far beyond what its peers and competitors can achieve. This is why we see most high-performing companies undertaking a disproportionate number of deals relative to their industry peers."

Almost a third (31%) of respondents attributed 20% or more of their businesses' companies' total revenue growth over the previous three years to acquisitions and 83% thought that at least some growth came from deals. Similar responses were given for anticipated revenue over the next three years with 30% expecting M&As to fuel growth of 20% or more and 88% expecting at least some growth from acquisitions.

"M&A remains a vital strategic tool for corporate executives worldwide," Bert said. "Yet management teams must not be misled into thinking that deal closing is a prize, in and of itself. "Rather, evaluating and integrating an acquired business in a manner that delivers a superior return on investment, demonstrating that a transaction is really the best use of shareholders' money, is what sets a good deal apart from a bad one."

Respondents identified the following as some of the critical factors for M&A success:

• Orchestrating and executing the integration process (56% for domestic and 47% for cross-border deals)
• Conducting due diligence (42% for domestic and 43% for cross-border deals)
• Achieving an optimal price for a deal (20% for domestic and 19% for cross-border deals)

Most corporate executives thought that their firms were successful at retaining valuable employees from both the target business (72%) and the acquiring company (77%). Similarly, most also agreed or strongly agreed that their transactions did not have a negative impact on customers of the target business (67%) or the acquirer (73%).

Complete results of the survey are available from Accenture.

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