Asian Mergers and Acquisitions: Riding the Wave

CHAPTER FIVE

Getting It Right Before You Begin

Many companies stumble into mergers and acquisitions (M&A) before they are ready, resulting in botched deals or expensive and chaotic acquisitions. Companies can do several things to prepare themselves before they go down the M&A path. The first thing to do is to use our debt-equity framework to figure out whether the company should be considering M&A. A system should be put in place to methodically track and screen potential M&A targets. Building an acquisition factory focused on smaller deals can increase the chances of success. Understanding whether the company can shape industry dynamics using M&A will be an important consideration. Finally, a company should not be shy about surrounding itself with expertise to support the deal.

The seeds of a successful merger or acquisition are planted early, long before executives zero in on a target company or make an offer.

The failure rate of mergers is high. Our research indicates that 29 percent of mergers result in an increase in aggregate profitability. According to one A.T. Kearney study that measured long-term market capitalization trends of companies involved in mergers, slightly less than half of all M&A deals create value.

The companies that do succeed usually have a framework in place that signals when they should consider mergers, helps identify and track targets early on, and guides executives through the deal itself once it materializes. We believe M&A should be planned and considered. ...