Critical Assessment of Performance of Mergers and Acquisitions

Abstract

It is now generally accepted in the M&A domain that most mergers fail. And yet despite the dangers and horror sagas associated with M&A transactions, these types of business combinations are here for good because they are now the principal route to rapid business growth for many firms. The burning question therefore is: how can firms that aspire to grow through mergers and acquisitions increase their chances of success? The point of departure for M&A should be development of an M&A strategy that is anchored on the firm‟s overall business strategy. The firm should adopt a structured approach that covers the whole M&A process; set metrics for evaluating M&A targets; and actively engage in searching for potential targets. The criteria used to spot the right target could include business strategy, potential synergies, market availability, scale of activities, geographical location, technology, market growth potential and, business and culture fit. The type of merger should be another consideration, in which case bottom-trawlers, bolt-ons, line extension equivalents and consolidation mature, all with over 50% success rate, should be prioritized. The firm should then carry out comprehensive due diligence and objectively/accurately evaluate synergies. With respect to synergies, the acquirer should establish beforehand what synergies exist, where those synergies exist and how they will be extracted. Once a deal is closed, it is necessary to establish its success or failure, post-merger. M&A success should be considered from the shareholders of the acquirer‟s perspective, and an M&A should be judged successful if Net Realisable Synergies exceed Acquisition Purchase Premium. M&A critical success factors include merger segmentation considerations, the type of acquisition, timing, APP, effective integration, economic certainty and accurate target valuation.