Search the Internet          Tips  Sites: Finance, Investment

70% mergers let down investors: Study

BS Corporate Bureau in New Delhi

Almost 70 per cent of the mergers in India have failed to create shareholders' value, both in terms of rise in market capitalisation as well as dividend payout, according to a recent study carried out by consultancy firm A T Kearney.

The study also says 70 per cent of the mergers have failed to improve upon the entities' pre-merger profitability.

"Only in three cases out of ten, the merger has been able to add a penny or more to the profitability of standalone entities," said Art Bert, partner (global mergers, integration and alliances), A T Kearney.

These results are from a global survey on post-merger integration carried out by A T Kearney, covering all significant mergers of $50 million and above, in the past 10 years.

"We looked at over 1,000 mergers globally, including several in India. The findings in India are not very different from the global findings," Bert added.

He is in New Delhi to attend the India Economic Summit organised jointly by the World Economic Forum and the Confederation of Indian Industry.

Worldwide, the study says, only 29 per cent of the mergers have been able to achieve the expected benefits. In Southeast Asia, which includes India, the proportion is only 24 per cent.

"The message going out to the Indian chief executive officers is the same as the message for the CEOs in the rest of the world: one, they face the same challenges with a similar track record; and two, they need to focus on the same elements for successful mergers," Bert added.

For the study, A T Kearney looked at key parameters like market capitalisation and profitability three months prior to the deal and two years after the deal was closed.

"We have noticed that if a merger is unable to deliver the expected benefits within 18-24 months, the likelihood of it ever delivering them goes down," Bert said.

The study says mergers fail to yield the expected benefits because of execution rather than strategic reasons.

As high as 58 per cent of the respondents identified under-communication as the main problem.

The other problems identified by the respondents in the survey include unrealistic/unclear expectations; too many compromises in the new organisational structure; lack of "master plans," of momentum, of top management commitment; unclear strategic concepts and slow pace of projects.

Powered by

ALSO READ:
India and the World Economic Forum
More Money Headlines