Mergers and Acquisitions in a Dynamic Economy : Focusing Above and Beyond the Financials
Doroh, William R.
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Mergers and acquisition deals per year have increased 350% during the 1990s because of the access to new customers, channels of distribution, intellectual property, technical skill sets, data, and competencies offered by the combinations. However, 83% of all deals do not create value for the shareholders of the companies involved. The managers of the lead company place too much emphasis on the financial aspects of the deal when they need to consider other, qualitative aspects. Three qualitative problems have been identified as the leading causes of failed transactions: a lack of an M&A program, integration plans that are not will defined or are carried out slowly, and a lack of emphasis on differing organizational cultures. To better understand how to solve these issues, one must first understand how M&A deals are structured. The reasons for combination represent the first part of the deal structure. Firms combine for a number of different reasons, including: product/service diversification, vertical integration, globalization, risk sharing, access to new technology and other resources, operational flexibility, innovation and learning, consolidation, and resource sharing. The next element of the deal structure, the forms of combination, can be presented on a spectrum on which investment, control, impact, integration, and pain of separation increase as the relationship goes from licensing, to alliances, to joint ventures, to mergers, to acquisitions. Mergers and acquisitions are at the end of the spectrum where the stakes are high and the problems must be minimized early in the process. The outcomes of the combinations are also articulated and range from disasters to breakthrough combinations. Once the structure is understood, the problems can be assessed.