Taking the Myth out of M&A’s

Rarely a day goes by without a merger or acquisition announcement. Among all growth strategies, those involving either a merger or an acquisition seem to be favoured despite their high level of risk and uncertainty.
From an analyst’s point of view, the ability to predict such asset movements is critical. In fact, an industry’s landscape can be completely transformed only by one such move. The Daimler-Chrysler merger is a case in point.
In this article, we will demonstrate that M&As are far less esoteric than we sometimes believe. Obviously, the number of variables surrounding a deal makes it impossible to draw a perfectly accurate picture of an M&A in the making but, as we will see, Competitive Intelligence can make a difference between being surprised and being aware.
Learning from the past to predict the future
The M&A failure rate, ranging from 50% to 70%, clearly indicates a lack of Competitive Intelligence (CI) skills or preparation because the success of M&As is highly dependent on the quality of the CI utilized. This assertion is demonstrated by the fact that out of the four most common grounds of M&A failure, three are information-related:

  • Unpredictability
  • Agency problems
  • Misguided managers
  • Failure to grasp and articulate the strategic intent behind the deal

The question that arises therefore is if it is possible to predict the future by analyzing past experiences and strategic trends to avoid being surprised be a competitor’s move?
One of the most surprising things about M&As is the apparent incapacity of companies to rationalize and learn from past experiences in order to evaluate and thus prepare for these types of transactions. Few companies except perhaps GE Capital, Cisco Systems, NationsBank and Hewlett-Packard have developed an internal evaluation system for M&A opportunities in all of the three phases of any such transaction:

  • Target selection
  • Negotiation
  • Integration

In Cisco’s case, many elements made it mandatory for the company to develop a M&A analytical process to avoid being overwhelmed by too many transactions and losing key employees at the same time.
The experience of Cisco and others is clearly proof of an organization’s capacity to rationalize M&As and this capacity is strongly embedded in its understanding of a competitor’s strategic thinking.

Leave a Reply