What is success in an M&A Deal?
There is a fair amount of discussion about when a deal can be judged to be a success or a failure, and even how to determine success.
Our own research has shown that the first six months following a deal’s closing is an excellent predictor of longer term success – the latter being defined as a period from three to five years following the deal closing. Much after that, and the effect of the deal will have dissipated or be too mixed with other changes at the company, in the industry, or in the economy as a whole.
But what is success? We like to consider shareholder performance as the ultimate criteria, but we acknowledge that there can be many different measures and stock performance is a very Anglo-American concept ignoring such factors such as local economy impact, workers and their families, suppliers and related companies (upstream and downstream), etc. However, it is simple to measure (try isolating and measuring worker or supplier impact across deals, countries, and time!) and easily understood. Thus, it has its appeal.
We discuss this further in our forthcoming book where we look as well at comparisons between experienced and inexperienced acquirers. The experienced acquirers don’t fare well, by-the-way:
Prior experience may not be a predictor of success, although some studies have shown that acquirers do better when making an acquisition that is similar to deals they have done previously. Here again the need for specific intelligence is central. Many studies have shown that relatively inexperienced acquirers might inappropriately apply generalised acquisition experience to dissimilar acquisitions. The more sophisticated acquirers would appropriately differentiate between their acquisitions. For example, VeriSign appears to have failed with its 2004 purchase of Jamba AG despite having made 17 other acquisitions in the prior six years, many in related internet businesses. Intelligence cannot, therefore, be taken for granted.
One challenge in trying to determine success of an acquisition lies in how to define ‘success.’ Is it shareholder value? If so, over what period? Or should one look at sales growth? The ability to retain key customers? Employee retention? Cost savings? And how would the company or companies have performed if they had not merged? Perhaps as some have suggested, success should be defined by the publicised goals of the merging companies themselves and then measured against achieving those stated objectives.
Intelligent Mergers 
Have there been any previous reports on M&A
success, giving a percentage of success/failure?
Simon
Tuesday, 24 July 2007
Simon, there are numerous analyses that have been done over the past 20 years showing the percentage of deals that have been successful. Until this merger wave (which began in 2003), they have virtually all shown that 60-70% of deals were unsuccessful, no matter how ‘success’ was defined.
This merger wave is different. Our own analyses from April 2006 at Cass Business School (sponsored by Towers Perrin, and as reported in the Financial Times and elsewhere) have shown that deals are now successful. McKinsey came out with a similar study 9 months later in January 2007 which confirmed this. Both were global studies. In terms of percentages, we see the average deal performing approximately 8% better than a global market index (shareholder return); likewise, somewhere around 52% or 53% of all deals are successful — which may not be much above the 50% mark, but is a vast improvement over the previous merger waves.
Scott Moeller
Tuesday, 24 July 2007