A match made in heaven or love on the rocks?

The deal-making, hand-shaking element of mergers and acquisitions is the easy part of the contract. It is the tricky process of making the union of two companies work that proves harder for many executives.

by Financial Times
Last Updated: 23 Jul 2013

There have been record levels of mergers and acquisitions lately, but deals such as those between Barclays and Woolwich, Vodafone and Mannesmann in 2000, and the 1998 merger between UK engineering groups BTR and Siebe have failed to perform as hoped.

One of the biggest stumbling blocks is that a smooth transition usually involves the combination of two existing computer systems into one, given industry’s current reliance on information technology.

Norwich Union, for example, only recently began integrating its back office systems following its merger with CGU and the formation of Aviva.

Bankers are more optimistic about the chances of success for more recent M&A’s, because the current cycle is more measured than the last upswing and there is no sign of the exuberance and frothiness that characterised the last spate of deals.

But that success ultimately comes down to one factor –the quality of management. Complete clarity on who is doing what is essential, otherwise the transition will most likely flounder.

Delaying on integration can also be dangerous – keeping up momentum from when the deal is signed is key because there will be a willingness for change at that time. Barclay’s deal with Woolwich was allowed to drift, according to a veteran dealmaker, which is why the acquisition became so messy.

Finally, before signing on the dotted line, both sides should do their homework and prepare for integration as early as possible to make sure management won’t be so overwhelmed by that process once the deal goes through that the performance of the company will suffer.

Source: UK Companies: A Messy Merger or a Contented Union?
Chris Hughes and Lina Saigol
Financial Times, 1/2 July 2006

Review by Deborah Bonello

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