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Should Companies Jointly Venture by Sauvik Banerjee Part - II
MAJOR WRITE DOWNS DUE TO M&A FAILURES *
MERGERS AND ACQUISITIONS-KEY FINDINGS A survey by PwC** has shown that the three main reasons, which drive executives to do M&A's, are access to new products, growth in market share and access to new markets. The objectives for M&A's mentioned in the survey are never in doubt, but the process used is, as the findings below explain further. Leslie Norton (1998) in a study conducted for Barron's, states that between 60-80% of M&A's are financial failures while a study of 118 companies by KPMG in 2001 found that 70% of M&A's do not created shareholder value for the merged companies. A study by Mckinsey&Co of 160 acquisitions across 11 sectors revealed that 42% had lower growth rates after acquisition when compared to their industry peers, 88% failed to accelerate growth and 60% failed to earn returns that would cover their annual cost of capital required to do the acquisition, while a Business week analysis of 302 M&A's showed that 61% of the merged companies destroyed share holder value.
* Source: Pekar P. Jr. in the 2003 Strategic Alliance Conference (New York). |
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