Promises of combined superpower financial strength aside, the terrifyingly benumbing question was posed to me by one of my closest friends, who had found time within his desperately busy business schedule to get engaged through ‘arranged’ channels with a wonderful lady (a brilliant attorney at- law!), whose first advice post the engagement to my beloved comrade was, “Let’s get our finances together and start a joint account... Asap!” Blast freezing couldn’t have chilled me to the bones faster than the lady’s statement! But incredulously, my besotted cocker bum of a buddy seemed so deliriously fascinated by the fiancées proposition, that all my pleadings and entreaties to influence him to not ‘give in’ were either flatly shoved away or angrily dismissed as being “hysterical!” To a point, where my utterly bewitched friend literally screamed at me to back off, shouting, “Why the hell are you stopping me? Wouldn’t you merge your finances with your wife’s?
Well, would I? Corporate research teaches well, and to married men, I say it teaches better; because much that happens in the corporate world applies lock, stock and a beer barrel to the personal lives of married men! And I had known for years the answer to the beguiling question of whether one should merge finances – or for that matter operations/ branches/employees... M&As for short. In one word. “No!”
Mergers – used as an inorganic growth strategy – rarely work. And the faster managers realise that, the better! I start with the authoritative IBM Global CEO study 2009, titled ‘The Enterprise of the Future’, which, after interviewing more than 1,130 CEOs globally, reports that a smashing 67% of the CEOs voted for growth through “organic” routes, with another 81% voting for “partnering extensively,” rather than M&As. In another 2009 survey finding from Deloitte Consulting’s CEO Survey, ‘Now is the time when winners stand out’, four out of five CEOs surveyed voted in favour of organic growth being the path to their companies’ future growth, with just a paltry 16% voting in favour of M&As. There seems to be increase in the number of those whose blindfolded faith in the power of M&As is rightly being wiped out, with the most contemporary 2009 dose coming from PricewaterhouseCoopers in the name of its 12th Annual Global CEO Survey, which states how “only 6% of CEOs think that M&As currently offer much potential for growth.”
The 2010 NYSE Euro next CEO Report titled ‘The Road to Recovery’ proves empirically that today, the percentage of CEOs who believe that “M&As, as an external factor, will impact the company’s overall growth through calendar year 2010”, has fallen by 16%, as compared to the figure three years back. In fact, 76% of the CEOs surveyed confirmed how M&A market opportunities are “not exceptional” through 2010. In a classic M&A global research report furnished by KPMG, all optimism regarding M&As is buried deep: “53% M&As had actually destroyed [shareholder] value, and 83% of mergers were unsuccessful in producing any benefit to shareholders…” The IABC Research Foundation report, ‘How Communication Drives Merger Success’ interestingly combines five different studies over a period of two decades, conducted by McKinsey & Co., A.T. Kearny, Business Week and Fortune, and concludes, “A majority of today’s mergers will fail. 1/3rd will be sold within 5 years, 90% will fail to live up to financial expectations, 50% will destroy shareholders’ wealth, 60% will see their stock price fall behind peers” within 2 years, and 2/3rd could have earned more simply by putting their money into certificates of deposits!
To put all heavy-duty research aside, let me give you a very interesting piece of information that may set your think tank rolling. During the year 2006, when sentiments in the global economy were on an extreme high (a year when even India Inc. saw its biggest billion dollar deals ever!), the top seven names on Dealogic’s M&A dealmakers list were Citigroup (having spend a continental $296.28 billion on 51 deals during the year alone), Goldman Sachs (spent $296.26 on 70 M&A deals), JP Morgan ($271.93 on 96 deals), Lehman Brothers ($255.57 on 47 deals), Merrill Lynch ($227.90 on 67 deals), UBS ($204.83 on 85 deals) and Morgan Stanley ($184.06 billion on 56 deals).
Strangely, the amount of money they spent on deals only increased their respective debt loads and weighed heavy on to their portfolio of non-performing assets. Just two years later, the largest of the M&A dealmakers, Citigroup returned losses amounting to $99 billion in 2008 – the highest ever for any company in the history of capitalism! Beat that for positive returns with $230 billion worth of shareholder wealth erased in the two years following the deal!
A study by the University of Exeter’s new Centre for Finance and Investment also revealed how in the five years post-deal, the ROI for merged entitites underperformed by an average of 26%, compared with shares in companies of A study by the University of Exeter’s new Centre for Finance and Investment also revealed how in the five years post-deal, the ROI for merged entitites underperformed by an average of 26%, compared with shares in companies of and this is precisely how Daniel W. Rasmus, Director of Business Insights, Microsoft Corporation quotes him in his 2009 report titled ‘Working in a blended world’: “Between 65 percent and 80 percent of M&As destroy shareholder value, rather than enhance it.” Explaining the reasons for failures, the white paper by Professors Ulrich Steger and Christopher Kummer of IMD Lausanne, titled, ‘Why M&A Waves Reoccur – The Vicious Circle from Pressure to Failure’ elaborates, “Synergies [of functioning together] are frequently overestimated – they look good on paper but are not realized…”
Having said that, I would put forward the proposition that M&As are not growth strategies but survival strategies – meant for drowning entities, who latch on to each other to live another day. That means that during the times of economic slowdown, M&As should have increased, especially in the companies floundering to survive. Unfortunately, the corporate world remained blinded and in fact reduced the number of M&As during this period. According to a January 2010 Global M&A Report by data monitor ZEPHYR, the value of global M&A declined by 15% to $3.62 trillion in 2009 (from $4.24 trillion in FY2008 and $5.61 billion in FY2007). The number of deals reduced to 64,981 in 2009 from 66,472 in 2008. Private equity deals declined in every outlined region by both volume and value.
Even in India, total value of M&A deals announced in 2009 was $21.20 billion against $41.54 billion in 2008, according to Grant Thornton’s Deal Tracker report 2010 – a drop of 49.01%. There were 488 deals in 2009 as against 766 a year back. While on one hand, domestic M&A volumes dipped to 142 from 172 last year, outbound M&A was down at 64 (as against 196 last year) while inbound M&A fell to 61 (as against 86 last year).
But brilliantly, the ever-solid Towers Perrin 2009 report titled, ‘M&A in the post-Lehman world’ proves my conjecture by stating, “Companies that completed M&As since the beginning of the downturn are outperforming their non M&A peers by 6.3% globally.”
Dionysius Exiguus initiated the BC & AD dating systems. For the contemporary mergers world, there’s one such Exiguus – and he’s called Warren Buffett, who in 1981 had narrated the momentous constitution regarding the futility of M&As, when he said, “Many top managers apparently were overexposed in impressionable childhood years to the story in which the imprisoned handsome prince is released from a toad’s body by a kiss from a beautiful princess... We’ve observed many kisses but very few miracles!” Mergers rarely work, and those that are undertaken in a rush of ego, infatuation and blindsighted power hunger, will fail!
All said and done, I knew that the battle to influence my unsuspecting friend’s mind had been lost the day he had set eyes on the lustrously effulgent solicitor. I scraped back what was left of my ego and decided to trudge back to my own turf – my home – where the rules were all mine. Entering home, I was just about to take off my coat, when my sweet wife shouted from across the hall, “Tell me, who is the nominee on your life insurance policy?” I could swear I felt a freezing blast from somewhere down the hall...
Well, would I? Corporate research teaches well, and to married men, I say it teaches better; because much that happens in the corporate world applies lock, stock and a beer barrel to the personal lives of married men! And I had known for years the answer to the beguiling question of whether one should merge finances – or for that matter operations/ branches/employees... M&As for short. In one word. “No!”
Mergers – used as an inorganic growth strategy – rarely work. And the faster managers realise that, the better! I start with the authoritative IBM Global CEO study 2009, titled ‘The Enterprise of the Future’, which, after interviewing more than 1,130 CEOs globally, reports that a smashing 67% of the CEOs voted for growth through “organic” routes, with another 81% voting for “partnering extensively,” rather than M&As. In another 2009 survey finding from Deloitte Consulting’s CEO Survey, ‘Now is the time when winners stand out’, four out of five CEOs surveyed voted in favour of organic growth being the path to their companies’ future growth, with just a paltry 16% voting in favour of M&As. There seems to be increase in the number of those whose blindfolded faith in the power of M&As is rightly being wiped out, with the most contemporary 2009 dose coming from PricewaterhouseCoopers in the name of its 12th Annual Global CEO Survey, which states how “only 6% of CEOs think that M&As currently offer much potential for growth.”
The 2010 NYSE Euro next CEO Report titled ‘The Road to Recovery’ proves empirically that today, the percentage of CEOs who believe that “M&As, as an external factor, will impact the company’s overall growth through calendar year 2010”, has fallen by 16%, as compared to the figure three years back. In fact, 76% of the CEOs surveyed confirmed how M&A market opportunities are “not exceptional” through 2010. In a classic M&A global research report furnished by KPMG, all optimism regarding M&As is buried deep: “53% M&As had actually destroyed [shareholder] value, and 83% of mergers were unsuccessful in producing any benefit to shareholders…” The IABC Research Foundation report, ‘How Communication Drives Merger Success’ interestingly combines five different studies over a period of two decades, conducted by McKinsey & Co., A.T. Kearny, Business Week and Fortune, and concludes, “A majority of today’s mergers will fail. 1/3rd will be sold within 5 years, 90% will fail to live up to financial expectations, 50% will destroy shareholders’ wealth, 60% will see their stock price fall behind peers” within 2 years, and 2/3rd could have earned more simply by putting their money into certificates of deposits!
To put all heavy-duty research aside, let me give you a very interesting piece of information that may set your think tank rolling. During the year 2006, when sentiments in the global economy were on an extreme high (a year when even India Inc. saw its biggest billion dollar deals ever!), the top seven names on Dealogic’s M&A dealmakers list were Citigroup (having spend a continental $296.28 billion on 51 deals during the year alone), Goldman Sachs (spent $296.26 on 70 M&A deals), JP Morgan ($271.93 on 96 deals), Lehman Brothers ($255.57 on 47 deals), Merrill Lynch ($227.90 on 67 deals), UBS ($204.83 on 85 deals) and Morgan Stanley ($184.06 billion on 56 deals).
Strangely, the amount of money they spent on deals only increased their respective debt loads and weighed heavy on to their portfolio of non-performing assets. Just two years later, the largest of the M&A dealmakers, Citigroup returned losses amounting to $99 billion in 2008 – the highest ever for any company in the history of capitalism! Beat that for positive returns with $230 billion worth of shareholder wealth erased in the two years following the deal!
A study by the University of Exeter’s new Centre for Finance and Investment also revealed how in the five years post-deal, the ROI for merged entitites underperformed by an average of 26%, compared with shares in companies of A study by the University of Exeter’s new Centre for Finance and Investment also revealed how in the five years post-deal, the ROI for merged entitites underperformed by an average of 26%, compared with shares in companies of and this is precisely how Daniel W. Rasmus, Director of Business Insights, Microsoft Corporation quotes him in his 2009 report titled ‘Working in a blended world’: “Between 65 percent and 80 percent of M&As destroy shareholder value, rather than enhance it.” Explaining the reasons for failures, the white paper by Professors Ulrich Steger and Christopher Kummer of IMD Lausanne, titled, ‘Why M&A Waves Reoccur – The Vicious Circle from Pressure to Failure’ elaborates, “Synergies [of functioning together] are frequently overestimated – they look good on paper but are not realized…”
Having said that, I would put forward the proposition that M&As are not growth strategies but survival strategies – meant for drowning entities, who latch on to each other to live another day. That means that during the times of economic slowdown, M&As should have increased, especially in the companies floundering to survive. Unfortunately, the corporate world remained blinded and in fact reduced the number of M&As during this period. According to a January 2010 Global M&A Report by data monitor ZEPHYR, the value of global M&A declined by 15% to $3.62 trillion in 2009 (from $4.24 trillion in FY2008 and $5.61 billion in FY2007). The number of deals reduced to 64,981 in 2009 from 66,472 in 2008. Private equity deals declined in every outlined region by both volume and value.
Even in India, total value of M&A deals announced in 2009 was $21.20 billion against $41.54 billion in 2008, according to Grant Thornton’s Deal Tracker report 2010 – a drop of 49.01%. There were 488 deals in 2009 as against 766 a year back. While on one hand, domestic M&A volumes dipped to 142 from 172 last year, outbound M&A was down at 64 (as against 196 last year) while inbound M&A fell to 61 (as against 86 last year).
But brilliantly, the ever-solid Towers Perrin 2009 report titled, ‘M&A in the post-Lehman world’ proves my conjecture by stating, “Companies that completed M&As since the beginning of the downturn are outperforming their non M&A peers by 6.3% globally.”
Dionysius Exiguus initiated the BC & AD dating systems. For the contemporary mergers world, there’s one such Exiguus – and he’s called Warren Buffett, who in 1981 had narrated the momentous constitution regarding the futility of M&As, when he said, “Many top managers apparently were overexposed in impressionable childhood years to the story in which the imprisoned handsome prince is released from a toad’s body by a kiss from a beautiful princess... We’ve observed many kisses but very few miracles!” Mergers rarely work, and those that are undertaken in a rush of ego, infatuation and blindsighted power hunger, will fail!
All said and done, I knew that the battle to influence my unsuspecting friend’s mind had been lost the day he had set eyes on the lustrously effulgent solicitor. I scraped back what was left of my ego and decided to trudge back to my own turf – my home – where the rules were all mine. Entering home, I was just about to take off my coat, when my sweet wife shouted from across the hall, “Tell me, who is the nominee on your life insurance policy?” I could swear I felt a freezing blast from somewhere down the hall...
