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Last Updated: Tuesday, 20 November 2007, 16:57 GMT
Deals fail 'after culture shock'
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Billions are spent on mergers, but most are not fully successful.
About 97% of mergers by UK companies fail to completely fulfil their strategic objectives a report suggests.

The culture shock caused by bringing together two organisations is the biggest reason for failure, according to management consultancy Hay Group.

It said that the UK's record was among the worst in Europe where the overall failure rate was 91%.

The global mergers and acquisitions boom has ground to a halt since the tightening of world credit markets.

Intangible assets

The report, which analysed more than 200 major European mergers and acquisitions found that about 28% of business leaders who had been involved said that the deal had failed to create "significant new value".

"This sounds alarm bells for firms struggling with the aftermath of the acquisitions boom of 2006-7", Hays said.

In 2006 alone, deals worth about 1.35 trillion euros (966bn) were concluded.

Hay said that when carrying out due diligence ahead of a merger, many firms prioritised finance and systems over more intangible assets such as business structures, staffing and corporate governance.

About 54% of business leaders said that not properly auditing such non-financial assets increased the risk of making a wrong acquisition

"Integrating intangible assets six months after a deal has gone live is too late," said David Derian, a director at the Hay Group.

"Companies should be examining the compatibility and differences between the two firms well before the deal is made public in order to have a clear plan of action in place right from the start."

'Trench warfare'

But about 70% of senior management believe that it is too difficult to get information on a firm's business culture, staff and organisational structures before they make a bid, the report said.

It added that after a deal is completed, only 13% of mangers put a high priority on engaging and integrating executives and the workforce as a whole.

The report suggested this had a "disastrous impact" on the successful integration of firms with 78% of employees at a company being bought opposing the mergers.

The atmosphere at work after a merger was also unsatisfactory many managers said, with 22% of those quizzed talking of a culture shock and 16% describing the situation as "trench warfare".

Mergers activity 'about to peak'
16 Jul 07 |  Business
UK firms spending less on mergers
01 May 07 |  Business

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