The classical answer to this question is ?to maximize shareholder
value.? But your customers are likely to hear that phrase as ?they?re
overcharging us for everything they sell.? And employees are not
likely to relate to that either.
Indeed, a friend and fellow graduate from the University of Chicago?s
Graduate School of Business is an executive at a major newspaper.
?When I was on the delivery loading dock, I found out that the guys
down there didn?t care about the same things,? he told me one day.
And ?maximizing shareholder value? was one of the things they didn?t
care much about . . .
A number of studies have been done on merger success. They use the
?shareholder value? method to evaluate the success but look at other
reasons. A fairly recent study by KPMG International, the accounting
and consulting firm, maintained that 40-70% of mergers fail.
The reasons for the mergers were cited as:
? entering new geographical markets ? 35%
? increasing product/market share ? 19%
? acquiring new products & services ? 8%
? integration of supply chain (both backwards and forwards) ? 7%
? maximizing shareholder value (there it is again!) ? 20%
? other ? 11%
NYU Stern School of Business
"Unlocking Shareholder Value: The Keys to Success" (Novvember, 1999)
Why is the firm doing this? What do you tell fellow employees?
It?s doing it so that the company can grow profitability. That means
increased opportunity for employees and managers. And if the firm is
managed properly by the executives, it leads to increased
profitability for the shareholders as well.
Business managers are taught early that control of costs is a major
responsibility. But one of the most-effective ways of controlling
costs ? whether they?re overhead costs or cost-of-capital ? is to make
sure that the firm is growing and reducing the percentage of cost for
every category. The growth and consolidation imperative is so strong
that Wall Street analysts continually review business sectors and try
to predict winners in consolidation phases of an industry --
Ziff-Davis CIO Insight
?Book Review: Grow or Die!? (Brown, Oct. 2003)
Why do mergers & acquisitions (M&A) fail?
In the KPMG study of more than 700 mergers, it cited several reasons for failure:
? lack of adequate pre-deal evaluations or ?due diligence.? They
included legal and financing details in this.
? lack of experience in M&A
? quick and effective selection of a management team to run the
merging of business activities
? early resolution of cultural issues in the way the 2 companies ran their business
? poor communications with employees, suppliers, customers and shareholders
The KPMG study is backed up by others, including one by Harbir Singh
of Wharton on the financial industry.
WhartonFinancial Institutions Center
"Pursuing Value in Financial Services"
Singh concentrates on success factors, which of course sheds
light on the failures too. His first two conclusions match those of
the KPMG study:
? Mergers work best when companies had significant merger experience.
One of the reasons that U.S. and U.K. firms were more successful in
the KPMG study was that they simply did it more often.
* The management team is key, Singh finding that when the "target's"
management is replaced it is a negative due to disruption of the
* Systems integration is a positive in reducing costs, with a
stronger effect in insurance companies than in banks.
Poor management of people is one of the attributes that the Deputy
Director of the National Bank of Greece, Maria Kouli, says is at work
in merger failures (you may have to register with MCE to see this study):
Management Centre Europe
"Why Do Mergers & Acquisitions Fail to Create Synergy?" (Kouli, August, 2001)
Prof. Paul C. Godfrey, of the Marriott School of Business at Brigham
Young University, summarizes the results of 21 studies on the topic,
including a key Booz Allen study that shows where strategy
Godfrey says that strategy formulation fails the merger is defensive
or done to block a threat to the business. The strategy also fails
when the merger is done because it?s ?what everyone else is doing.?
And finally, strategies fail when there?s no clear objective.
In addition, Godfrey notes that the merger process fails in 4 ways:
1. by not keeping key people
2. due to delays
3. because of incompatible cultures
4. poor personal chemistry between chief executive officers of the two companies
Brigham Young University
"How Mergers Go Wrong," (Godfrey, undated)
Google search strategy
business ?grow or die?
?mergers and acquisitions? strategy