Archive for June 6th, 2007

Beating the Odds is very Difficult Even for the Experienced

Posted on Wednesday, 6 June 2007. Filed under: Commentary, Mergers |

The central challenge today in M&A is how to beat the odds that are stacked against a company being successful in M&A deals. 

This is even more difficult when you see, as we have in the past few days, some of the excesses of the M&A market — especially as the current merger wave begins to show it’s age.  Note, for example, the high leverage of deals and the levels of junk bonds (see the Wall Street Journal’s excellent blog ( which has a story from yesterday entitled:  Another Day, Another M&A Record Broken).  Note especially that it is KKR that is issuing the extremely high level of junk bonds in this most recent deal.  Few have more experience than they do in deal-making.

We have found through our research that even serial acquirers such as GE, Cisco and others are not giving their shareholders better returns than their industry competitors that don’t do deals frequently.   

No matter how measured, a fair degree of consistency has emerged in the results of studies that have examined M&A ‘success’ through the Twentieth Century.  Essentially all of the studies found that well over half of all mergers and acquisitions should never have taken place because they did not succeed by whatever definition of success used.  Many studies found that only 30% to 40% were successful.  Yet most companies that have grown into global giants used M&A as part of their growth strategy.This paradox raises the following questions:

·         Can a company become a large global player without having made acquisitions?

·         Is organic growth sufficient to become a leading global player?

The challenge for management is to reconcile the low odds of deal success with the need to incorporate acquisitions or mergers into their growth strategy.  Figure out how to beat the odds and be successful in takeovers.  This is where business intelligence techniques are essential.

One wonders, as the Wall Street Journal did as well, whether KKR and it’s advisors will be left holding the bag due to another deal gone bad.  Let’s hope they’ve used all the intelligence at their disposal.

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