MARKETS & INVESTING | Staff Reporter, Singapore

Here's what firms fail to do after an M&A

Three in five only partially integrate or leave the acquired firms to operate as they are after the M&A deal.

Companies in Singapore are looking at mergers and acquisitions (M&A) to secure growth but are not doing enough in the merger integration after the deal, EY revealed.

According to its poll of Singapore bosses, 57% of the respondents invest less than 5% of the total deal value on merger integration activities. About 21% percent invest between 5% and 10% of the deal value in merger integration activities, whilst 21% invest more than 10%.

Three in five only partially integrate or leave the acquired firms to operate as they are after the M&A deal.

Karambir Anand, partner and EY Asean leader, Strategy and Transformation, Ernst & Young Solutions LLP said, “Successful mergers hinge on early integration planning as part of due diligence when executing an M&A. Many M&A deals fail to generate – and many even destroy – value for shareholders as a result of a lack of consideration for robust post-merger integration coupled with low integration spend.

Anand added that companies that successfully integrate typically invest 8 to 10% of the deal value, and form a dedicated team to drive post-merger integration activities.

According to the respondents, the top risks that companies potentially face from sub-optimal integration are unrealized synergies, cited by 32%, cultural issues, cited by 28%, and impact on business operations, cited by 20%.

Having learnt from past experiences, the two key areas that they would do differently were having a dedicated integration team, cited 46%, and communicating the integration process more clearly to stakeholders, cited by 39%.

About 65% of the respondents who plan to integrate post-deal aim to do so within 6 to 12 months of the deal. About a quarter or 26% target fast integration, whilst 10% look at an integration time frame of one to two years.

Operations, followed by sales and marketing, were identified as the two most important functional areas for integration.

“Our quantitative analysis of hundreds of deals across many years shows overwhelmingly that most firms are destroying shareholder value due to the lack of integration. This holds true for large firms, as well as smaller firms with market capitalization of less than $150m,” Anand added. 

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