Academic studies consistently show that most mergers and acquisitions fall short of expectations, if they don't actually fail. So what does that mean for the recent spate of European companies who have been gambling billions of euros, pounds and kronas, acquiring US assets?
The evidence so far is not encouraging. While few companies are willing to discuss their experiences in detail, interviews with analysts, corporate insiders and consultants suggest that the high profile problems of the best known transatlantic marriage--DaimlerChrysler--are far from unique. According to Gerald Adolph, a Booz Allen senior partner in charge of merger integration, two-thirds to three-quarters of all European acquisitions in the US have either failed to enhance shareholder value or help realise company expectations.
During the late 1990s as stock markets were moving relentlessly upwards, few observers seriously questioned Europe's western expansionism. Such activity appeared to be part of the natural order of an increasingly global market place. As a Deutsche Bank executive put it, 'what else can European firms do to energise stature and performance that matches a US takeover?"
It is still possible, of course, that some troubled European acquisitions will ultimately realise long-term benefits--but the current track record begs two basic questions:
Why have major continental players become so obsessed with taking over US businesses in the first place, and should CEOs and investors of acquisitively-minded European companies rethink their positions?
Experience suggests a number of operational and financial risks. The way in which Chrysler's collapse has wrecked havoc over Daimler's healthy finances has been well documented. SAP's incursion into the US, meanwhile, forced the company to offer options to all its upper management--a gesture that had chewed up a good deal of its profits. AEGON has been unable to dump the sizable non-life assets of Transamerica, exposing it to a riskier side of the insurance industry from which it's worked so hard over the past decade to rid itself. And the enthusiasm of analysts for Adecco--acquirer of two major US employment agencies--has been qualified by the Swiss company's failure adequately to report the breakdown of revenues and profits by geography, a shortcoming which makes it very difficult to assess the effectiveness of the company's aggressive global deal-making strategy.
"Deals with US firms can be challenging for Europeans due to the speed at which US managements are accustomed to making decisions--perhaps because there is less protocol and formality embedded in the corporate culture of many companies relative to their European counterparts", says Denis Picard, a PwC partner based in New York who specialises in M & A integration and cross border transactions. US acquirers, he points out, consistently relocate and devote key management resources to offshore acquisitions for the purpose of integrating the target into the US company, conforming reporting and processes, increasing and defining desired levels of communication and sharing corporate culture locally. Many deals by European acquirers in the US are not so much flawed because of the business case or strategy as by communication and cultural differences.
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This article reviews some of the major issues involved in integrating US assets, thereby challenging European executives to more candidly reflect on the true costs and risks of embarking on US takeovers.
The transatlantic takeover numbers are indeed staggering. According to data provided by Thomson Financial Securities there were more than 3,900 European acquisitions of US firms between 1994 and July 2001. Deal-making has been especially frenetic since 1997, increasing by 26 per cent a year and peaking in 2000 with 884 European takeovers of US firms worth $242bn (see Figure 1). …