Business executive • MAY 11


Stephen Archer talks about


Mergers and acquisitions, and forecasts the state of play for 2011


A recent survey of M&A advisors and investment banks


showed an expectation of an increase in the level of deal making in their region. Private equity, one of the fund sources most hard hit by the economic turmoil, is also predicted to make a comeback. Indeed, it is already doing so. Nonetheless, it is realistic to expect that the economic situation will affect the potential for deals and their nature in the next few years. There has been a huge jump in global commodity and energy


costs and thus the need for any acquirer to move in fast. The ever-growing natural resources hunger of China and the other BRICs (Brazil, Russia and India) are pushing in these markets. China and India are searching the world for attractive targets in energy and mining concerns to serve their own needs. Among the largest drivers of the M&A market are the


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stePHen arcHer is an international business consultant, especially engaged in developing sustainable winning business cultures. He also advises and broadcasts on a variety of economic and business issues, including mergers and acquisitions.


ergers and acquisitions (M&A) has been a growing feature of the corporate world over the past decade and many businesses and brands have been absorbed.


M&A is a process in which large organisations swallow others (and sometimes small ones swallow larger ones). In theory M&A creates great value in business, but in fact


it often fails to increase value as much as promised. This worries many investors who prefer businesses to stick to what they do best. There are still stories of big mergers. In 2010, for example, we saw Cadbury (a major UK company) swallowed by Kraft (a US giant), and British Airways and Iberia were involved in high profile M&A activity. 2011 seems to be getting off to a buoyant M&A start. Credit is still tight, business is stressed and the global economy still fragile; how can there be such a level of M&A taking place? Mergers often happen out of necessity, acquisitions occur


more opportunistically. Only the good businesses are bought. Funding for M&A deals is healthy for good deals – no matter


how large. This is despite the fact that some credit markets are squeezed. Sovereign wealth funds (the state sponsored funds managed along private lines to make investments) are also being more cautious or choosy today.


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institutional shareholders of publicly quoted businesses. They want to see the value of the investment swell as fast as possible. The investment banks are also very active. They opportunistically identify potential deals and partner with boards to make them happen. But neither of these drivers feature commercial synergy and logic as the first priority – that appears later. The failure rate of mergers is high – despite the detailed work that goes in to preparing them. Not total failure but rather a lower return on the promise at the outset.


synergies The synergies between companies are often based on technical know-how, complementary products or market access. This may be sound in theory, but such synergies require extra efforts from all employees in both companies. However, most employees feel they are giving 100% already, so it needs a major challenge for the companies to get increased efforts. Above all, to gain synergies, as with most gains for M&As there needs to be change. But, change is difficult, particularly in large companies. Change integration for full synergistic gain can only happen by creating the framework in which people can work happily and practically. Business leaders think that change and synergies can be forced through; they often find it hard to admit there is a barrier to overcome.


‘Back office’ savings There only needs to be one HR, one finance, one IT, one manufacturing, and one marketing function in any newly merged company. Back office savings are not trivial, but behind


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