The study, which surveyed more than 200 European M&As over the last three years, found that half the business leaders surveyed said they over emphasized traditional due diligence (on tangible assets such as finance and IT) at the expense of intangible assets (such as leadership compatibility and cultural integration).
Yet more than half of respondents believed that neglecting to audit non-financial assets increased the risk of making the wrong acquisition. "Business leaders must recognise that the value of today's companies is primarily in their intangible assets - the strategic, people and cultural factors that don't show up on a balance sheet" says David Derain, European M&A director at Hay Group.
Part of this shortcoming stems from the difficulty in auditing intangible assets: 70% of senior executives say that it is currently too difficult to obtain intelligence on the corporate culture and human capital of target companies.
But business leaders also fall short of giving these issues their full attention post-merger. Only 13% say that they gave priority to engaging and integrating senior management and the workforce once the M&A had been completed, and only about a quarter analysed cultural compatibility of the firms, while over half of respondents failed to prioritise a leadership capability review.
These failings can have a serious impact on the success of the integration process: 78% of employees in acquired companies opposed their mergers, 50% actively. In addition, more than a third of business leaders expressed dissatisfaction with the post-merger climate, with one fifth referring to the early stages as a "culture shock", and 16% going as far as calling it "trench warfare".
"Culture is not an HR issue - it is a business issue," says Derain. "Business culture represents a class of assets which must be protected and properly aligned during the integration process if a merger is to succeed."
In the light of the M&A frenzy that has amounted to €1.35 trillion in Europe in 2006, the survey makes worrying reading.
Source: Dangerous Liaisons
The Hay Group
Review by Emilie Filou