Insights on takeovers and mergers from KPMG’s 2011 global survey

I’ve spent a day reading through a detailed analysis of global takeover and merger evidence (“M&A”) written by accountants KPMG in 2011. The report is both comprehensive and complex. However, it contains some useful insights for students and teachers researching the key strategic issues raised by M&A. I have highlighted and summarised some of the key findings below.

Summary findings

Strategic growth remains the dominant driver for doing a deal, with market leaders wanting to retain and improve their market positions.

How many deals create value? Only 31% So, it’s still a high proportion of deals that fail to create value for the shareholders of the buying company. In essence, most M&A is bad news for shareholders

Increased scrutiny of proposed deals by stakeholders - management have to work harder to convince stakeholders (particularly shareholders) that there is real value in what they are buying.

Successful deals tend to be ones that focus on delivering growth (revenue) rather than by reducing costs.

Corporate buyers are becoming more careful in their selection of targets and are taking more time to avoid overpaying.

Increasingly, M&A transactions will be cross-border and multinational as firms seek to extend their activities beyond the mature Western economies towards emerging markets. This adds to the risks and complexities of M&A.

There is still a lot of work to be done to improve the way that HRM is integrated into the M&A process. Managers are still not focusing on areas that have been regularly singled-out as post-deal challenges, particularly dealing with the differences in corporate culture between the buyer and target business.

What are the main reasons for M&A?

For many companies surveyed, the main strategic driver of M&A is now revenue growth. They have come through a cost-reduction phase (prompted by the 2007-2009 credit crunch) and are now looking for opportunities to develop new markets, increase market share, and boost revenues

When asked about the rationale behind their takeovers, the survey indicates the following:

Increase market share / market presence: 48%
Geographic growth: 35%
Expand into a growing sector: 27%
Cost synergies: 19%
Investment opportunity: 18%
Enter a new market: 17%
Acquire a brand or additional service: 13%
Other: 12%
Diversify: 10%

The importance of synergies

For example, way back in 1999, KPMG reported on what they considered to be the “six keys to unlocking shareholder value” from takeovers and mergers, dividing them into two categories: hard keys and soft keys:

Hard keys:

Synergy evaluation
Integration project planning
Due diligence

Soft keys:

Management team
Cross-border & cultural issues addressed
Communication internally and externally

Fast-forward 13 years and HRM issues in takeovers and mergers are still prevalent. Staff retention is seen as the most important issue (28% stated it as a top issue) followed by managing different corporate cultures (25%). KPMG conclude that it is vital for acquirers to develop retention strategies to get people to stay long enough to make the deal a success.

Despite the well-documented impact of cultural issues on the success of M&A, due diligence on potential HRM issues is still a low priority. Whilst 81% of survey respondents said that they conducted financial due diligence on the takeover target, only 38% said that they did due diligence on HRM issues.

Lessons learned: what firms would do differently next time

In each survey, KPMG ask managers responsible to leading takeovers what they would do differently next time! This is great research evidence for students - it indicates the lessons learned from doing transactions. The three themes that recur each time this question is asked are;

- Better due diligence and planning
- Faster implementation & integration
- More attention to HRM and cultural issues.