Corporate Finance Update from Nigel Whittle: Mergers

Merger and acquisition activity has hit a ten year high in the UK and we are seeing a similar high level of activity here at Lambert Chapman LLP.

One of the more difficult transactions is carrying out a successful merger. Anecdotally between 30% – 40% of mergers do not fulfil their potential. A merger is unsuccessful if it does not materially increase overall shareholder value. In simple terms, the net effect of a successful merger should be to either increase income or reduce costs (or both) and generate an appropriate rate of return for the amount invested.

There can be many reasons why a merger isn’t successful and experience has shown that appropriate resources with the appointment of a suitably qualified merger team with a focused implementation plan are essential.

Culture integration is key. The merger team needs to ensure that neither merging party feels alienated with one side dominating the other.  If key employees do not feel part of the process and are not included in the merger plan, there is a risk that they will leave resulting in one of the most valuable resources that should be acquired through the merger, being lost. The merged entity should be focusing on each parties strengths to ensure that the new combined entity has gained substantial additional capabilities.

The merger team should regularly remind themselves why the merger was carried out and be clear on its objectives, for example, whether it was part of a growth strategy, to remove competition, to diversify into different products or market places, to remove surplus costs or to obtain valuable IP. This initial objective needs to be remembered and regularly revisited by the merger team.

If you are thinking of undertaking an acquisition or merger make sure you have developed a robust plan and will have the resources to carry it through to give you the best chance for success in increasing overall shareholder value.