M&A is not a step to be taken lightly. The nuances of a large deal can be mind-bogglingly complex, no matter how enticing the combination appears. Integrating two entities into a single coherent structure takes careful planning and the ability to counter unforeseen problems.
Toppan Vintage, a trusted financial printing and communications company, in partnership with Mergermarket, is pleased to present the newest edition of M&A Pulse newsletter. This newsletter features responses from US-based senior corporate executives who shared their insights on failed deals.
Lesson #6: Devote extra resources to integration. Leading deal experts weigh in...
More than eight in ten of our respondents (84%) admitted that if certain stages of the deal process had been improved, the outcome may have been different in their failed transactions. And the top area they said needed more attention was postacquisition integration (26%).
“We should have conducted a better due diligence process and planned out integration more carefully,” said the CFO of a French telecoms company. “Our lack of foresight in executing the deal led to integration problems. We also acted too quickly in the integration process and did not allocate enough capital to it.”
Combining two companies is notoriously difficult, for self-evident reasons. Members of management and other employees have their jobs put at risk. IT systems and offices need to be re-arranged and integrated. New corporate policies need to be codified that suit both sides and bring the best out of the two teams.
Shortcomings in these areas can bring about devastating falls. In the US$35bn merger of Sprint and Nextel in 2005, the two telecommunications companies failed to appreciate the differences in their two cultures. Sprint had a more formalized corporate environment, while Nextel was more freewheeling, with space to innovate. Tough competition from the likes of Apple and Verizon exacerbated the problems, distracting the company from the work needed to make the deal a success. Three years later, the combined entity wrote off a stunning $30bn in goodwill impairment.
The bottom line: Begin planning for integration before the deal even closes. If difficulties arise, be ready to pour additional resources into the process, or face the potential of complete failure.
MASTERING M&A THE HARD WAY: LESSONS FROM FAILED DEALS
UNDERSTAND EXACTLY HOW AND WHY SOME M&A DEALS FAIL TO LIVE UP TO INITIAL EXPECTATIONS, AS WELL AS THE LESSONS THAT CAN BE LEARNED FROM THEM.