Blinkered Due Diligence To Blame for High Rate of Failed Mergers and Acquisitions
Most due diligence exercises overlook vital, intangible information. This helps explain why there is such a high failure rate in mergers and acquisitions according to the strategy consultancy, Meridian 1.
Chelmsford, UK (PRWEB) July 7, 2004 -- The recent increase in merger and acquisition activity may see an increase in the quantity of deals. However, this is unlikely to be accompanied by a much needed rise in quality, unless businesses make some fundamental changes to the way they assess potential acquisition targets according to the international business strategy consultancy Meridian 1. "The continuing popularity of mergers and acquisitions (M&A) is surprising given the poor returns many of them produce," claims Steve McGrady, Managing Consultant with Meridian 1 and co-author of a new booklet that challenges the current view of M&A best practice.
Research studies consistently prove that acquisitions suffer a failure rate of between 40% and 80%. These failed mergers not only erode shareholder value, they can de-motivate and demoralixe employees, which in turn creates confused and dissatisfied customers.
Meridian 1 believe that evidence from dozens of national and international mergers, confirmed by a growing body of research findings, highlights some fundamental issues that are ignored in the deals that fail: "Lawyers and accountants control the process, so most due diligence is focused on the legal, financial and commercial aspects of a potential acquisition. These days, however, there is a growing recognition that intangible assets can represent the majority of the value in many organizations. The latest evidence shows that 65% of mergers fail due to people issues. In most deals, these issues are not even considered until after the contract has been signed, which is why the problem exists," claims McGrady.
Meridian 1 believes that the reasons behind the lack of attention to intangibles in the due diligence process are the same ones that lie behind the slow response of Finance Directors to accounting for intangibles in most businesses; despite the regulatory regime being open to this development since 1999.
Meridian 1 argues that companies must improve the situation, and support may come from the newly empowered investor community. Emboldened by their success in tackling executives on a number of fronts, they might begin to put pressure on management teams to improve the acquisitions process also. Meridian 1 predict that the drive for better business practice that began in the wake of the Enron debacle will inevitably lead to investors demanding a much higher success rate from future mergers.
Meridian 1 has published a booklet containing eighty two key points that they believe will stimulate debate about how to change things for the better. "The current approach needs a radical improvement," McGrady argues. "The work done on most acquisitions may be due, but it certainly isn't diligence."
For additional information, or a copy of the booklet referred to in the article, contact: Steve McGrady on +44(0) 870 922 0697
Meridian 1: international business strategy and leadership specialists, providing a range of innovative consultancy and training solutions to help businesses turn the challenges of the 21st century into opportunities.
Contact:
Steve McGrady
Managing Consultant
Meridian 1 Ltd.
+44(0)870 922 0697
http://www.meridian1.ltd.uk
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