The 9th topic in my series of “Ask the experts – why companies to go through transformation” , focuses on M&A strategy.
Mergers and acquisitions are about driving value in a business – integration and transformation of the merged or acquired business is a key factor in effective realisation of shareholder value.
For example, one business may have a strong supply chain process backed up with strong technology and finance systems, and another business has a strong sales & marketing operation with the capability to cross sell complimentary products. By acquisition and merger of the two, and transforming the merged business to optimise the best bits of both, considerable value can be achieved.
American giants such as GE, 3M and Oracle are masters of the swift acquisition and merger of complementary businesses (and swift divestment when they no longer fit the strategic plan).
In the private equity markets, underperforming businesses are targeted and merged, and with transformation and slick financial engineering, can achieve considerable improvement in return for investors.
However, it is not all success – in fact the failure rate of acquisitions is estimated at a startling 70-90% - indicating that CEO’s are often unrealistic about the benefits of mergers, and fail to understand how to integrate and transform. Despite these horrific failure rates, £billions continue to be spent on M&A each year: good news for the lawyers, investment banks and other advisors, but not so often for shareholders.
Next topic in the series (coming soon): Shareholders.