Tremendous Opportunity; Hefty Risk
Global political and economic uncertainty may persist, but global M&A activity remains steady, even increasing in some regions such as the United States and Asia- Pacific region. M&A deal volume and deal value in the U.S. rose 6 percent from 2011 to 2012, from 9,831 transactions to 10,419. U.S. deal value increased even more—up 22 percent from $1.09 trillion $1.33 trillion.
Despite the increasing numbers, failure rates for M&A initiatives are extremely high. Depending on which report you consult, M&A initiatives have a failure rate of anywhere between 50 and 85 percent. Failure to consider the synergies and redundancies of the end-to-end supply chain of both companies is arguably a top contributor to the shortfall. Redundant facilities, assets, suppliers, customers and products can put a significant drag on profitability and efficiency. Furthermore, many deals fail to look beyond the value that justified the transaction to find new sources of synergies and value. Due diligence in most deals can overlook as much as 50 percent of the potential merger value.
It’s no wonder that, while many executives are enthusiastic about M&A deal potential, their boards are hesitant to act because of lack of clarity on how the company will successfully manage an ambitious deal. How can businesses improve their chances for M&A success and reduce the inherent risk?
Log in to download this paper.