When mergers don't add up

Further evidence that mergers and acquisitions often fail to live up to the hype and excitement that accompany their announcement is contained in research from KPMG Management Consulting.

The report is a touch ironic, given that it appeared in the same week that the firm announced its intention to merge with rival Ernst & Young. It says that a lack of early planning for restructuring and integration is chiefly to blame for the failure of many such deals.

The research report, called Colouring the Map, is based on the questioning of senior board members of more than 300 companies throughout Europe about recent merger and acquisition activity. It found that planning for restructuring was often poorly thought out and underfunded, and plans largely ignored key areas such as information technology.

More than 55 per cent of respondents were unable to place a value on the budget for restructuring costs in a newly-merged entity, and 43 per cent said the merger had not been completed within the expected time frame. Only 7 per cent of those who budgeted for restructuring had made funds available specifically for IT restructuring, and 14 per cent said their companies had had no advance plans for integration.

Alan Reid, chairman of KPMG's European management consulting practice, said the findings were a "cause for concern" because they showed that companies were not preparing effectively. "Even where comprehensive preparations are made, these tend to focus on closing the deal, not on what happens next," he said. "This tends to suggest that companies are hoping that the benefits they wish to gain from the acquisition or merger - economies of scale, greater efficiency and so on, will happen as a natural consequence of the deal. The reality is that extensive and careful planning is necessary to avoid the kind of problems that can threaten the long-term success of the new company. These include difficulties in integrating the IT systems of the two companies and in finding a successful human resources strategy for the merged entity."

His colleague, Nick Griffin, added that there seemed to be major discrepancies between the number of respondents who rated their merger or acquisition a success and the number whose companies had carried out a formal review. "The fact that so few companies undertake an objective review of the success of the merger or acquisition implies that these measures are judged largely on subjective factors and appearances rather than on quantifiable measures," he said. Even where such reviews were made, they tended to concentrate on financial measures rather than "critical areas" such as staff and IT systems effectiveness, added Mr Griffin.

One reason put forward for this lack of objective measuring is that deals of this sort tend to have an immediate focus on increasing size and geographic spread rather than on more strategic goals. When such aims are set in the context of the main goals and aspirations, it is clear that the targets - more profits, cost reduction and new product development - are not necessarily linked to the wider spread and larger overall presence the deal is designed to achieve.

Mr Griffin said the survey demonstrated that "mergers and acquisitions continue to be risky and troublesome projects for companies to embark on. However, it also makes it clear that, whether or not they are judged successful on their own terms, they are not necessarily the most effective means of achieving the kind of success that most companies require."

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee