Why M&A deals turn sour

Written by Saikat Neogi | Updated: Apr 19 2013, 06:42am hrs
While Indian Inc did 1,100 mergers and acquisitions in six years starting 2005, about two-thirds of them failed to create significant value in the first year of the deal. And about 60% of the acquirers actually destroyed value over the period, says a KPMG report.

The trend in India is similar to what happened even in the developed countries, where the companies started greater post-merger integration planning. With increased focus on delivering synergies and better integration, global acquirers were able to create value. If Indian companies have to stay ahead of the curve, they will need to undertake much broader due diligence to factor in operational issues that drive deal value and think about their post-deal plans.

The study found that acquirers of companies in the manufacturing sector in India performed better than the those in the services sector, as about 29% of the deals in the manufacturing sector outperformed the index as compared to 20% in the services sector. The deals made in the mid-market segment of $50-250 million gave lowest returns.

Global studies have shown that asset-heavy acquisitions are easier to derive value from and integration of people-heavy business is much difficult. The study underlines that Indian acquirers will have to undertake post-merger integration process more seriously as investors and regulators will hold the management accountable for delivering on their pre-deal claims.