Special Report, The M&A Cycle: Will it be different this time?
In the past, studies have questioned whether M&A adds long-term value and there is plenty of academic and anecdotal evidence of badly-botched integrations. “There are plenty of train wrecks out there,” as Steve Allan, M&A practice leader at Towers Watson, puts it.
But, there are some signs that companies are becoming more savvy about ensuring long-term success. Allan says: “In our study with Cass Business School, we have compared stock price performance six months before deal announcement to the end of the quarter of deal close. This analysis showed that most deals do add value.”
For a deal to be successful, however, they must be carefully managed. “Companies should be aware that doing a deal is a high-risk strategy,” says Allan.
Experience is an important part of getting a deal right. The companies which are most successful at ensuring their deals add value over the longer term are those which frequently carry out deals – practice makes perfect.
The companies that have perfected the art of making deals understand that it’s more important to focus on the qualitative factors rather than always keeping an eye on the bottom line.
“It’s vital to focus early on integrating workforces as well as ensuring key members of staff from the target company do not leave,” Allan says. “Sophisticated buyers remember that they bought the company because they liked it so there are often valid business reasons not to change everything. Instead, they’d rather learn from their acquisition.”