Wednesday, March 16, 2005
Mergers and Acqusitions: A Spotty Record, At Best
McKinsey Quarterly, published by the legendary consulting firm, has an article about mergers and acquisitions that all should read at http://www.mckinseyquarterly.com/newsletters/chartfocus/2005_03.htm The full article requires a "guess pass" or a subscription, and can be accessed at http://www.mckinseyquarterly.com/article_page.aspx?ar=1402&L2=5&L3=4&srid=63&gp=1
Mergers and acquisitions have long been known to be risky; years ago Harvard's Michael Porter was involved in a study that showed only about half work out. This McKinsey article identifies key problems with overestimating of savings from synergies and underestimation of costs of integration. Too often, mergers are done because "Wall Street likes it." But the subtleties get them: the marketplace keeps changing while management's attention is diverted by the legal and negotiating machinations, and company operations become paralyzed as projects are put on hold and spending stops to "make the financial results look good." It's often at this time that management's indecision and lack of clarity about who'll stay and who'll go as they reach for synergies leads to the best people going and the people who don't have marketable capabilities staying, obviously an undesired consequence.
It was someone's Mom may have been the wisest of them all, who, without Excel spreadsheets and masters degrees in finance, somehow knew enough to say "things take twice as long and cost twice as much." Somehow, when I gave clients that kind of budgetary advice they'd politely ask me to leave; but somehow I was always able to get an audience with the new managers who replaced them. :)
Mergers and acquisitions have long been known to be risky; years ago Harvard's Michael Porter was involved in a study that showed only about half work out. This McKinsey article identifies key problems with overestimating of savings from synergies and underestimation of costs of integration. Too often, mergers are done because "Wall Street likes it." But the subtleties get them: the marketplace keeps changing while management's attention is diverted by the legal and negotiating machinations, and company operations become paralyzed as projects are put on hold and spending stops to "make the financial results look good." It's often at this time that management's indecision and lack of clarity about who'll stay and who'll go as they reach for synergies leads to the best people going and the people who don't have marketable capabilities staying, obviously an undesired consequence.
It was someone's Mom may have been the wisest of them all, who, without Excel spreadsheets and masters degrees in finance, somehow knew enough to say "things take twice as long and cost twice as much." Somehow, when I gave clients that kind of budgetary advice they'd politely ask me to leave; but somehow I was always able to get an audience with the new managers who replaced them. :)
