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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4 Responses to “Beating the Odds is very Difficult Even for the Experienced”

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I am interested in the structure of the publishing industry and how POD technology and new media may impact it. POD is to publishing what Napster was to music. What do you believe may happen, mergers and acquisitions-wise, in publishing as POD becomes more ubiquitous?

As a PE executive often backing robust platforms in order to execute an M&A strategy, I can attest to the difficulty in successfully prosecuting acquisitions. Does the author have any recommendatios for how to best evaluate how successful an M&A approach will be in any given sector?

Surely to become a “corporate leader” in your respective field you need as much to be focused on when to divest as when to acquire. I consider the best performers – in terms of shareholder returns – are those who effectively recycle their assets, knowing when to cut their losses or to cash in non-critical business units and to either return the funds to shareholders or re-invest them profitably – for the shareholders – in growth units which need investment.

To me this is one of the aspects where the PE sector has “won” such wealth accumulation; some may say they offload and “cash in the carry”, but the fact is they are then ready to go again on the next growth opportunity with investors and bond holders handsomely rewarded.

Companies need to adopt the same approach in order to grow shareholder value surely: once the current management have run out of ways to grow a business, its time to cash in (thorough spin-off, leverage or sale) and allow someone else to take it on?

Whilst the processes for acquiring successfully are fraught with “blind-spots” which impact the value attainment, tell me, has there been much research which assesses those who “churn” corporate investments vs those who simply acquire and hold vs those who do nothing?

very interesting, but I don’t agree with you

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