Magazine article Marketing

Mergers and Acquisitions: Last to the Table

Magazine article Marketing

Mergers and Acquisitions: Last to the Table

Article excerpt

Four in five mergers fail, but more could work if marketers got involved in deals from the outset, writes Jane Simms.

Big money makes big headlines, and there has been a rash of big-name mergers in recent months. But, on entering a new financial year, the real work begins on how these companies can be unified successfully.

The problem is that it is often only after a deal is signed that marketers are brought into the discussions.

Precedent suggests that up to four of the five recent consumer company mergers - L'Oreal and The Body Shop, Procter & Gamble and Gillette, Telefonica and 02, Adidas and Reebok, and NTL's takeover of Telewest and Virgin Mobile - will fail. The reasons for potential failure are well documented, but the success rate of mergers and acquisitions (M&A) has remained largely unchanged for 30 years because firms have not learned the lessons of mistakes.

Research by The Conference Board shows that fewer than half of the mergers of the 80s and 90s have created value for shareholders, while McKinsey & Co found that 80% of mergers do not even earn back the costs of the deals themselves. The causes include poor communication, inadequate integration and failure to address the cultural differences between the two sides.

Also, crucially, too little attention is paid to brand fit. Hewitt Associates found that less than 10% of management time is spent on brand fit during due diligence, and reports on M&A strategies rarely mention the words 'customer' or 'brand' at all.

Given that intangible assets, including brand and reputation, account for between 30% and 70% of the market value of companies, this oversight is dangerous. Terry Tyrrell, European chairman of Enterprise IG, says: 'One of the objectives of any M&A strategy should be to increase brand equity, but consideration of brand strength and brand migration and sorting out the brand portfolio tends to be done after the deal.'

Most mergers are about reducing cost and duplication to make companies leaner and quicker, he says. While such hard-nosed financial considerations are not intrinsically bad, the value of the combined entity should exceed the sum of the individual parts. 'There also needs to be an analysis of the 'softer' reputational issues that can arise from staff layoffs, customer confusion and negative press comment,' adds Tyrrell.

Compromising purchases

While investment bankers and corporate lawyers admit they don't spend enough time looking at the brand and reputation aspects of a deal, says Tyrrell, they argue that doing so would compromise their ability to get the deal done at all and to get the best price. It would also, therefore, compromise their fees.

But brand owners - or, at least, their chief executives - are complicit in this, driven by ego competitive pressure, herd instinct and the buzz of deal-making. What's more, making an acquisition is easier and quicker than new product development. Hugh Davidson, visiting professor at Cranfield School of Management and author of The Committed Enterprise, says: 'Chairmen and chief executives like to see their pictures in business magazines and to be talked about by peers. A major acquisition will result in a bigger company, more power for the individual and higher remuneration. Executives enjoy sport too, and acquisitions are the nearest thing to it in business.'

Too many acquisitions are based on emotion, ambition and buzz, with the interests of shareholders emphasised at the expense of employees, who are often destabilised by mergers, and customers, whose relationships and service levels are typically disrupted, says Davidson. What's more, firms typically overpay for acquisitions and overestimate their benefits.

Many of these 'post-deal breakers' could be mitigated if marketers were involved in M&A, he argues. 'On the whole, financiers tend to look at acquisitions from a historical and financial point of view. …

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