A New Way to do Business?

Much has been written about the frailties of the M&A process. Companies overlooking human capital concerns and failing to account for them in the deal price.

Commentary from economic and HR journals, broadsheets and magazines paint a dark picture, of inherent weaknesses in assuming that you can simply ‘bolt on’ acquisitions to an existing company and expect ‘the whole’ to all run smoothly. Not so, as we have seen time and time again.

However there appears to be a change in accent as M&A activity marches on unabated.

Dealmakers appear to be to be learning important lessons from past experiences. Given their time again, they’d plan earlier, pay more attention to cultural integration and watch more closely over post-deal integration. This is a key finding from a new survey of 101 dealmakers around the world carried out by KPMG Transaction Services.

M&A research from Cass business School and consultants Towers Perrin looked at recent transactions (completed in 2004) and found that a range of deals worth between $400million and $1.5bn had outperformed the market by 7%. Earlier M&A deals confirmed the traditional view that similar sized transactions carried out at the same point in the M&A cycles of 1988 and 1998 underperformed the market by 2.5% (’88) and 6.4% (’98).

One of the factors cited for these statistics was that post merger integration has got better in recent years. Human resources staff are being asked to join the process early on. Some business leaders seem to have accepted that all that stuff about people is actually worth acting upon!!

Sceptics cite limitations in the scope of this research. Really huge mergers such as Alcatel’s $14bn merger with Lucent are not included. Deals of this size continue to be very troublesome. Nevertheless the emphasis on people / human capital / the ‘soft keys’ or however you want to phrase it, is being given more consideration now than ever before.

It would appear that, for those that have the capital to choose, growth through acquisition is a damn site easier than through organic growth. Clearly the ‘buy and bolt’ M&A method is flawed. Perhaps there is now the realisation that organic growth must occur, even in acquisition, to accommodate seismic organisational change.

Phil Jefferis