Fewer Mergers, More Acquisitions?

M&A deal sizes are shrinking relative to the acquiring companies' revenues, a survey finds, and respondents are more skeptical of the value that ca...
Stephen TaubJuly 26, 2004

It looks as if M&A is ready to bust out all over again.

On behalf of Accenture, the Economist Intelligence Unit (a sister business of CFO.com) recently surveyed more than 100 executives at large companies in North America, South America, Europe, and Asia. More than 70 percent of respondents said they are either currently undertaking an M&A transaction or planning to do so within the next year.

The survey determined that deal sizes are shrinking — shrinking, that is, relative to the acquiring companies’ revenues. Survey responses also suggest that respondents are more skeptical of the value that can be achieved through “mega deals.”

Just 8 percent of respondents expect a merger of equals, while 74 percent expect their companies to acquire smaller businesses.

As for why executives are planning to do deals, 54 percent said that mergers and acquisitions are part of their ongoing growth strategy for value creation; 27 percent said they need more growth than their core business can provide. Other reasons include lessened opportunity to increase value through operational efficiencies; realizing operational synergies; sharing risks and skills; countering takeover attempts; and tapping into emerging consumer markets.

One overarching reason that executives are willing to do a deal is because they’ve had good experiences in the past: 51 percent said they consider their most recent M&A activity a success. Just 14 percent said it wasn’t, and 35 percent said it was too early to tell.

To determine M&A success, 58 percent look to a metric that might not be considered very rigorous — whether their company achieves entry into new markets — compared with only 9 percent who measure the increase in free cash flow and only 4 percent who look to an increase in the newly merged entity’s stock price.

Only 48 percent of respondents said they have confidence in their company’s post-merger integration capabilities and processes, and just 37 percent said that executives in their organizations are themselves measured against ongoing integration metrics.

4 Powerful Communication Strategies for Your Next Board Meeting