‘Poor Communication The Number One Reason For M&A Failure’

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New Delhi: : Mr Arthur Bert, global leader of the mergers, acquisitions and alliances division of consultancy firm AT Kearney, expects a phase of consolidation in sectors like cement, telecom, pharmaceuticals, banking and IT services in India. Melbourne-based Mr Bert, who is also AT Kearney’s managing director for South Asia, wants to ensure that the firm is prepared to seize new opportunities as they unfold in the region over the next few years. ‘‘We’ve just doubled our senior executive presence in India and we will continue to bolster our presence at the senior level before inducting people at the junior level,’’ he says . ‘‘I plan to visit India more often.”

Mr Bert says of the 300 merger deals in the last five-seven years, the firm’s success track record has been around 90 per cent. ‘‘These were the deals where we had significant involvement,’’ says he. ‘‘Recently, three out of ten deals that we have got involved with are re-mergers.’’

For the consultancy business, Mr Bert says the firm has identified four core areas—financial industries, telecom, consumer products and retail, and energy (including process industry and utilities)—for driving its business in India.

Sharing AT Kearney’s findings on M&As, Mr Bert reveals a chilling fact: only three out of 10 mergers are successful. Excerpts from a conversation on issues pertaining to merger and merger-reintegration with Mr Bert that took place on the sidelines of the India Economic Summit 2002 in New Delhi.

How successful are mergers and acquisitions in India?
The data in India is consistent with what we find globally, which is only three out of 10 mergers being successful. Most M&As fail. We’ve studied over 1,000 M&As in the last decade and analysed those deals.

One way of measuring success is shareholder value creation. But we’ve a more stringent measure—creating shareholder value above the industry average. The second matrix is combined profitability—as per our study, 29 per cent of the companies have combined profitability, that is one penny more than the two companies on the stand alone basis.

What factors lead to merger failures: clash of cultures, big egos, incompatible IT systems or different management approaches?
The single reason cited for failure in the chain is: ‘Mastering the integration process’. Our study has covered nine reasons: insufficient communication, unclear synergy expectations, compromise in new organisation structure, missing master plan, missing momentum, lack of top management commitment, unclear strategic concept, missing pace of project, and IT issues being addressed too late.