Daily News: October 16, 2012

Survey: Businesses Not Realizing Potential of Cross-Border M&A


Global businesses are not realizing the full potential of cross-border mergers and acquisitions (M&A) as a means of driving growth due to weaknesses in the deal process. A new global study, The M&A Blueprint: Inception to Integration, published by global law firm Eversheds, shows that deal teams need a more holistic approach and stronger connections between the planning, completion and post-deal integration phases.

The study involved more than 400 multi-national businesses that have worked on cross-border M&A deals in the past three years. It shows that nearly half (43%) of businesses believe that the most common cause for deals not successfully achieving their goals is due to a failure to address post deal integration from the early stages of deal due diligence.

The report also shows that legal risk is an increasingly important consideration in the assessment of potential deals. General Counsel provide essential input at this stage and more than half (59%) of all respondents said they had spotted potentially damaging issues early enough to caution management about proceeding with the deal.

The research highlights that less experienced buyers are finding the process challenging but even those with a wealth of knowledge believe that there are improvements to be made.

Robin Johnson, M&A partner at Eversheds, said: “The current economic climate has made the business of doing deals much tougher, with the research highlighting an acute awareness of risk in the process. However, company boards are under pressure to secure growth and M&A is an essential business tool for achieving this, in particular for organizations thinking about tapping into or increasing their penetration in new international markets.”

He added, “Our research shows that the overriding factor contributing to the success of a cross-border deal, is the presence of a core team providing the ‘connective tissue’ to link all the phases together, taking the deal from the inception stage through to post-completion integration. Businesses need to start joining the dots between the different stages of the deal cycle to move the focus from just simply ‘doing the deal’ to thinking about life for the business beyond the deal.”

The M&A Blueprint: Inception to Integration report sets out the blueprint for success in cross-border deals as identified by deal-makers themselves:

1. Inception

  • From the start – 38% of deals where the in-house team were brought in too late suffered problems during integration.

  • Early warning – 59% of all respondents said they had spotted potentially damaging issues early enough to advise that a deal should not go ahead.

    2. Planning and Due Diligence

  • The crucial stage – 43% said the most common cause of the failure to realize value in transactions was down to avoidable errors in the due diligence and planning phase.

  • Joined up thinking – 70% felt that linking due diligence and integration planning together would help to improve the deal process.

    3. Deal Execution

  • What matters most – The reasons General Counsel would advise not to proceed with a deal were illegality/regulatory (45%), e.g. bribery, competition and antitrust, and commercial concerns (45%), e.g. price and valuation, litigation risk, integration costs.

    4. Integration

  • A false saving? – 83% did not use external lawyers to a large degree during integration, although they were acknowledged to add value. The main reason for this was cost.

  • Avoid mismatches – 26% felt that the failure to realize value in a recent cross-border M&A deal was due to a misalignment between legal dealmakers and the day to day business team.

    The report also found that companies are two and half times more likely to have faced problems with integration if the in-house legal teams were involved late in the process. This is particularly true for those who are less experienced in the deal process, with the report showing that businesses whose in-house legal teams had worked on less than ten cross-border deals over the past two years were more likely to face problems in the integration phase.

    Additionally, the report reveals that legal advice, both internal and external, is currently brought in too late and not at a strategic level. Appropriate proper legal advice at every stage in the deal cycle is critical to the success of M&A transactions.

    The full report can be requested by emailing imogenlee [at] eversheds [dot] com