Mergers and acquisitions in a down economy
There can be no doubt that the boom years from 1996 and 2001 were accompanied by an unprecedented number of mergers and acquisitions. After the bubble burst, however, such activities seemed to slow down. Examples of disastrously bad M & A's, like AOL-Time-Warner or Vivendi, have sobered many, along with the massive write -downs for Internet properties bought at the height of the e-business fever.
To a great extent, the lessons of the foolish M & A's have been learned, at least for the moment. These include:
- Don't deal with grossly overpriced properties for fear that this is you last chance.
- Don't snap up more than you can digest.
- Don't buy businesses that have a totally different model or frame of reference from your current one.
- Don't buy properties just to assuage your CEO's ego.
In fact, M & A is picking up this year, as we've been documenting on this site. In fact, according to a PriceWaterhouseCoopers study, fully 70% of 150 major U.S.-based multinational corporations plan to make significant acquisition or merger moves in the next two years. They do, however, realize the difficulties to be overcome:
One of the biggest barriers in realizing the true value of their transactions, survey respondents said, is the difficulty in aligning corporate cultures, operating philosophies, and management practices. Multinationals said this barrier was more significant than a host of others, including ambitious cost-reduction and revenue targets, as well as inadequate or hard-to-integrate IT and financial reporting systems. The only tougher barrier than aligning cultures is overly aggressive financial projections.
And while the failures are spectacular, most companies report good results from previous acquisitions. As the study notes,
Overall, executives were pleased with the outcome of their transactions. Seventy percent claimed they exceeded prior expectations-17 percent performed substantially better than anticipated, 33 percent somewhat better and 20 percent slightly better.
