BBC News | BUSINESS | 'Most international mergers fail'

BBC News Online: Business

Monday, 29 November, 1999, 19:52 GMT

'Most international mergers fail'

Shareholders are losing out in more than 80% of all cross-border mergers, putting serious doubts on deals with an estimated volume of $2.2 trillion.

Research by accountancy and consulting firm KPMG suggests that only 17% of all mergers added value to the combined company, while as many as 53% actually destroyed shareholder value.

The remaining 30% of deals made hardly any difference to the performance of the companies involved.

The results are in stark contrast to the perceptions by top managers. More than 80% of senior executives involved in mergers believed that their actions had in fact increased value for share holders.

Reality gap

The reason for the gap between perception and reality: "Less than half of interviewed directors had conducted a formal post-deal review", said John Kelly, head of KPMG's Mergers and Acquisitions (M&A) Integration.

According to Mr Kelly, many firms focus too much on the "hard mechanics" of the merger to extract value from an acquisition.

Instead managers should concentrate more on "soft" issues like selecting the right management team and resolving cultural misunderstandings.

Culture clash

Language and culture appear to be the biggest barriers to a successful completion of the deal.

Mergers of companies from the same country are most likely to succeed. When US and UK firms merge, success rates are high too.

But deals putting together companies from the US and most European countries are often running into trouble.

Mr Kelly said that the statistics confirmed "the importance of cultural and linguistic issues in cross-border deals".

The report "Unlocking shareholder value, the keys to success", examined the 700 largest cross-border deals between 1996 and 1998. More than 100 senior board directors involved in the transactions were interviewed.

To measure the success or failure of mergers, KPMG looked at the share price performance of companies before and after the merger, and compared them with industry trends.

Related to this story:
Why bigger is not always better (18 Aug 99 | The Company File)
Rover holds back BMW (28 Jul 99 | The Company File)
Mergers boost world investment (28 Sep 99 | The Economy)
Banking on size to compete (27 Sep 99 | The Company File)

Internet Links: KPMG
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