M&A Activity May Grow

New York, May 30: | Updated: May 31 2002, 05:30am hrs
US merger activity still is near a seven-year low, but a new study indicates Corporate Americas appetite for deals is increasing even as executives are starting to take responsibility for failed mergers.

Nearly 30 per cent of roughly 150 Fortune 1000 executives interviewed recently said they expected to pursue more mergers in the next six months, according to a study being released Thursday by Accenture, a global consulting firm.

Only 18 per cent expected their deal appetite to decrease from last year.

That is welcome news for starving dealmakers, who have been languishing through the slowest second quarter on record since 1995 when just $54.4 billion worth of deals was announced, according to data from Thomson Research. The reason is an uncertain business climate and growing shareholder backlash against mergers.

In an even more encouraging sign, the study showed about half of the executives interviewed blamed their own poor evaluation of the potential synergies and benefits of a merger for flopped deals. Justin Jenk, Accentures head of M&A and corporate strategy, said that awareness could ultimately lead executives to focus less on instant bottom line results and more on how to capture synergies.

We see a deal not as a transaction, but as a continuum, Jenk said. The trick is to have the confidence and the discipline to step back and say, Am I getting carried away with things

The study showed executives are becoming increasingly aware that most failed deals stem from errors during the merger due diligence phase, or the pre-merger review of a target companys historical and financial records, Mr Jenk said.

The traditional due diligence frequently ignores exactly what steps will need to be taken to successfully implement a merger after its announced, Mr Jenk noted.

In fact, the study showed 83 per cent of the respondents were not able to distinguish between the different value levers or strategic rationale for doing a deal.

People tend to be looking for hidden surprises and legal mine fields, as opposed to what they are going to do with the business and create value, Mr Jenk said. You can look at habitual, successful acquirers and they have a very good system. They have the confidence to do a deal, and the confidence to say, No. Still, despite better pre-deal preparation, there is still much improvement to be made, Accenture said. Only 11 per cent of the executives surveyed said strategic integrity was the most important factor to completing deals, while 20 per cent said execution excellence was the key.