A Global Merger Fever
During the 1990s, and especially in the last two years, news of corporate mergers and acquisitions has hit with mind-numbing speed. Names of firms hyphenate daily, and the worth of the new giants is nearly beyond comprehension. In 1999, the total value of announced M&A deals worldwide was estimated at $3.44 trillion, according to Thomson Financial Securities Data, a 36% jump from the record- setting figure the year before. This trend is putting enormous pressure on managers to quickly hone their global merger skills.
M&As that reach across national boundaries, once a rare occurrence, have become downright commonplace. An impressive list of cross- border marriages is unfurling, including Ford-Volvo, Daimler-Chrysler, British Petroleum-Amoco, and Vodafone-Mannesmann. The value of cross-border M&As grew more than sixfold from 1991 to 1998, from $85 billion to $558 billion, “with an increasing tendency toward very large-scale unions,” according to a recent report from the Organization for Economic Cooperation and Development. “Cross-border M&As must now be included among the fundamental mechanisms of industrial globalization,” says the report. The overwhelming share of foreign direct investment (FDI) -- more than 85% -- consists of M&A activity rather than the building of new plants in other countries.
Even though the U.S. remained the most active merger market in 1999, making up 55% of the global value, Europe took a strong second place with 39%. The value of European M&A deals hit $1.23 trillion. While much European merger activity still occurs within each country’s borders, the next step in European business consolidation is an escalation of cross-border mergers and acquisitions, according to a Wall Street Journal article. “We’ve seen the development of country champions; now we’ll see the development of European champions and then global champions,” says Steven Heller, worldwide merger chief at Goldman Sachs Group, investment bankers.
Moreover, cross-border M&As are playing a huge role in developing nations as well, according to a new United Nations report. “The growth of FDI in recent years has been fueled to a large extent by a boom in cross-border mergers and acquisitions. This phenomenon is increasingly important in the developing world and played a key role in reviving FDI flows in 1999,” the U.N. report says. In 1998, 111 countries recorded inflows of over $100 million in FDI, compared with 45 countries in 1985. Among developing host countries, the five receiving the most FDI over the past decade have been, in descending order, China, Brazil, Mexico, Singapore and Indonesia.
But, while the pace of mergers continues to accelerate, studies are showing that, as often as not, mergers fail to enhance shareholder value. A study by KPMG International analyzing 700 of the most expensive deals from 1996 to 1998 found that 53% actually reduced shareholder value. That may stem partly from the fact that strategic considerations other than shareholder value -- for example, maximizing a company’s size or reducing business risk -- may drive these consolidations. In addition, cross-border mergers add a lot of complexity to M&As, throwing distance and different languages, cultures and customs into a complicated mix of corporate differences and loyalties. In short, the “people problems,” which can make or break any merger, become even more critical in a global merger.
Daimler-Chrysler provides a good example of just how tough even a well-thought-out cross-border merger can be, according to an article in The Economist. Both the merger itself and post-merger integration were “carefully planned and executed,” the article says. On a continuing basis, a dozen teams of managers from the two companies monitored a database recording daily progress and sought the board’s backing for every step in the continuing integration. Still, few expected merging the companies to be so difficult, according to the article. The firm has had to meet a range of different challenges, from decisions about language and corporate identity to defections of talented designers and managers from Chrysler and differing styles of handling discussion at board meetings. However, it’s possible that such hard- won experience in cross-border mergers may, in the end, help Daimler-Chrysler successfully handle other deals, such as its recent acquisition of a 34% stake in Mitsubishi Motors Corp.
The companies that are most successful at M&As tend to link strategic formulation, pre-merger planning and post-merger integration, according to studies by consultants Booz-Allen & Hamilton. Such firms view a merger deal as a means to an end, not an end in itself. Even once the merger is accomplished, there needs to be a strategic vision of the intent of the merger, detailed plans for the change process, and plenty of leadership, according to Booz-Allen & Hamilton’s studies.
HR experts are crucial in making a corporate marriage work. Concrete suggestions include the following: handle personnel issues quickly, using established policy; use an explicit plan to address issues of corporate culture; and from the start, communicate constantly, clearly, honestly and decisively to those both inside and outside the companies.
====================================================
Thomson Financial Securities Data has much information on recent merger trends at
http://www.tfsd.com/news_room/top_stories/default.asp
The U.N. report “World Economic Situation and Prospects 2000” is at
http://www.un.org/esa/analysis/wesp2000.pdf
The OECD report “Cross-Border Mergers and Acquisitions: Their Role in Industrial Globalisation” can be found at
http://www.oecd.org/dsti/sti/prod/sti_wp.htm
M&As that reach across national boundaries, once a rare occurrence, have become downright commonplace. An impressive list of cross- border marriages is unfurling, including Ford-Volvo, Daimler-Chrysler, British Petroleum-Amoco, and Vodafone-Mannesmann. The value of cross-border M&As grew more than sixfold from 1991 to 1998, from $85 billion to $558 billion, “with an increasing tendency toward very large-scale unions,” according to a recent report from the Organization for Economic Cooperation and Development. “Cross-border M&As must now be included among the fundamental mechanisms of industrial globalization,” says the report. The overwhelming share of foreign direct investment (FDI) -- more than 85% -- consists of M&A activity rather than the building of new plants in other countries.
Even though the U.S. remained the most active merger market in 1999, making up 55% of the global value, Europe took a strong second place with 39%. The value of European M&A deals hit $1.23 trillion. While much European merger activity still occurs within each country’s borders, the next step in European business consolidation is an escalation of cross-border mergers and acquisitions, according to a Wall Street Journal article. “We’ve seen the development of country champions; now we’ll see the development of European champions and then global champions,” says Steven Heller, worldwide merger chief at Goldman Sachs Group, investment bankers.
Moreover, cross-border M&As are playing a huge role in developing nations as well, according to a new United Nations report. “The growth of FDI in recent years has been fueled to a large extent by a boom in cross-border mergers and acquisitions. This phenomenon is increasingly important in the developing world and played a key role in reviving FDI flows in 1999,” the U.N. report says. In 1998, 111 countries recorded inflows of over $100 million in FDI, compared with 45 countries in 1985. Among developing host countries, the five receiving the most FDI over the past decade have been, in descending order, China, Brazil, Mexico, Singapore and Indonesia.
But, while the pace of mergers continues to accelerate, studies are showing that, as often as not, mergers fail to enhance shareholder value. A study by KPMG International analyzing 700 of the most expensive deals from 1996 to 1998 found that 53% actually reduced shareholder value. That may stem partly from the fact that strategic considerations other than shareholder value -- for example, maximizing a company’s size or reducing business risk -- may drive these consolidations. In addition, cross-border mergers add a lot of complexity to M&As, throwing distance and different languages, cultures and customs into a complicated mix of corporate differences and loyalties. In short, the “people problems,” which can make or break any merger, become even more critical in a global merger.
Daimler-Chrysler provides a good example of just how tough even a well-thought-out cross-border merger can be, according to an article in The Economist. Both the merger itself and post-merger integration were “carefully planned and executed,” the article says. On a continuing basis, a dozen teams of managers from the two companies monitored a database recording daily progress and sought the board’s backing for every step in the continuing integration. Still, few expected merging the companies to be so difficult, according to the article. The firm has had to meet a range of different challenges, from decisions about language and corporate identity to defections of talented designers and managers from Chrysler and differing styles of handling discussion at board meetings. However, it’s possible that such hard- won experience in cross-border mergers may, in the end, help Daimler-Chrysler successfully handle other deals, such as its recent acquisition of a 34% stake in Mitsubishi Motors Corp.
The companies that are most successful at M&As tend to link strategic formulation, pre-merger planning and post-merger integration, according to studies by consultants Booz-Allen & Hamilton. Such firms view a merger deal as a means to an end, not an end in itself. Even once the merger is accomplished, there needs to be a strategic vision of the intent of the merger, detailed plans for the change process, and plenty of leadership, according to Booz-Allen & Hamilton’s studies.
HR experts are crucial in making a corporate marriage work. Concrete suggestions include the following: handle personnel issues quickly, using established policy; use an explicit plan to address issues of corporate culture; and from the start, communicate constantly, clearly, honestly and decisively to those both inside and outside the companies.
====================================================
Thomson Financial Securities Data has much information on recent merger trends at
http://www.tfsd.com/news_room/top_stories/default.asp
The U.N. report “World Economic Situation and Prospects 2000” is at
http://www.un.org/esa/analysis/wesp2000.pdf
The OECD report “Cross-Border Mergers and Acquisitions: Their Role in Industrial Globalisation” can be found at
http://www.oecd.org/dsti/sti/prod/sti_wp.htm