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The most recent merger and acquisitions “wave” starting after the financial crisis in 2009 was brought to an abrupt halt in the first half of 2020 by Covid-19 lockdowns around the globe. However, as acquirers eyed buying opportunities and sellers desperate for cash were put on the market, the second half of 2020 saw the highest deal pace since 2007.[1] Predictably, as the Covid-19 crisis recedes, struggling firms will be bought by bargain hunters and suffering industries will consolidate, giving rise to another wave of M&A transactions. But buyers beware! There is ample evidence that M&A creates significant post-deal performance issues for acquiring “buy-side” firms. However, new research shows that effectively managing three processes of acquisitions can have an outsized beneficial impact on M&A success.
When M&A goes wrong
For example, a broad analysis of 2,500 deals found that more than 60 percent destroyed shareholder value.[2] Recent high-profile examples of value destroying transactions include:
Bayer’s ill-fated $63bn U.S. acquisition of Monsanto. Since completing the deal in 2018, Bayer’s market value is now half of where it was in 2015 when the deal was completed.[3]
Occidental Petroleum’s $55bn acquisition of Anadarko. After acquiring Anadarko in 2019, Occidental Petroleum’s market capitalization has fallen from about $42bn on the day the Anadarko deal completed to roughly $12bn now, and the firm has cut its dividend by almost 90 percent, their first dividend cut since 1991.[4]
Three keys to M&A success
Poor results from M&A have been attributed to a variety of management missteps both pre- and post-deal.[5] However, among the myriad aspects of transactions, recent research has identified three mission-critical tasks that stand out as being vital to creating M&A success:
Process 1: Accurately valuing targets.
Process 2: Proficiently managing post-merger integration.
Process 3: Skillfully addressing the “big-three human factors” of M&A.
Process 1: Accurate target valuation
A survey of 1000 corporate and private equity executives identified accurately valuing the target as one of the top two most important issues within management’s control that create M&A success or failure.[6] For example, during the bidding war for Anadarko with rival Chevron, Occidental shareholder and activist investor Carl Icahn raised a very public concern that Occidental was grossly overvaluing the transaction, stating he believed the deal to...