B&E & IIPM Think Tank present the M&A update 2011-12, Including a Primer on M&As across The Globe this year and analysis on Major Sectors of India that are ripe for M&A
The B&E/IIPM Think Tank mergers & acquisitionSreport, 2011-12
As US corporate profits reach 60-year highs and global economies start accelerating, M&As are coming back with a bang. In fact, investors have already started flexing their muscles as new capital starts flowing into their funds. Yet, with the global economy facing the possibility of another downturn, is the corporate world ready for consolidation? Will buyers and sellers indulge in as frenetic an activity as seen in the pre-recession days? Or will the coming quarters be a damp squib on takeover sentiments? B&E and IIPM Think Tank present the M&A update for 2011-12
Companies spend more than $2 trillion on acquisitions every year, yet the M&A failure rate is between 70% and 90%…” When Profs. Clayton M. Christensen, Richard Alton, Curtis Rising, and Andrew Waldeck of the Harvard Business School wrote these words in their March 2011 seminal work titled ‘The New M&A Playbook’, they must have wondered what’s ‘new’? Nothing actually. Irrespective of the year one takes, the failure rate of M&As has more or less always bounced between the percentages they mention. Yes, there have been good years, when the failure rate has defied expectations and has been only around 60%. And there have been bad years, when almost every M&A attempted destroyed shareholder value. But that’s about as much as one needs to know about M&As. From Accenture to McKinsey, from BCG to Booz Allen Hamilton, from Stanford to Wharton, there is little debate left globally on whether M&As add to shareholder value... they don’t. In fact, most destroy it with surety. But then, why do CEOs globally still go ahead and attempt mergers and acquisitions?
One line of thinking compares the M&A behaviour of CEOs to cigarette smoking. There’s no debate on whether smoking causes cancer. It does. Yet, one would find pretty sane, intelligent and bespoke individuals indulging in the exercise. Logically understood, the attitude is quite addictive, whether for smoking or for M&As. CEOs get infatuated to the M&A dopamine high and the rush of seeing their companies’ turnovers double, even triple overnight – and not because of any strategic moves they might have made in the marketplace, nay any innovation, or a product launch. But simply, an M&A; “The bigger the ego of the acquiring company’s CEO, the higher the premium a company is likely to pay for a target,” write Dr.Mitchell Marks and Dr. Philip Mirvis in their 2011 paper in Journal of Business and Psychology, quoting varied research studies. There’s another line of thinking that says that as the average probability of success of a new business anyway falls between 10% and 30%, an M&A activity should not be considered anything different. The success rate of an M&A exercise mirrors what one would expect from a new business venture; and therefore CEOs should necessarily take it up, as there are 10% to 30% M&As that are superlatively succeeding too in maximizing shareholders’ wealth. Be that as it may,
As US corporate profits reach 60-year highs and global economies start accelerating, M&As are coming back with a bang. In fact, investors have already started flexing their muscles as new capital starts flowing into their funds. Yet, with the global economy facing the possibility of another downturn, is the corporate world ready for consolidation? Will buyers and sellers indulge in as frenetic an activity as seen in the pre-recession days? Or will the coming quarters be a damp squib on takeover sentiments? B&E and IIPM Think Tank present the M&A update for 2011-12
Companies spend more than $2 trillion on acquisitions every year, yet the M&A failure rate is between 70% and 90%…” When Profs. Clayton M. Christensen, Richard Alton, Curtis Rising, and Andrew Waldeck of the Harvard Business School wrote these words in their March 2011 seminal work titled ‘The New M&A Playbook’, they must have wondered what’s ‘new’? Nothing actually. Irrespective of the year one takes, the failure rate of M&As has more or less always bounced between the percentages they mention. Yes, there have been good years, when the failure rate has defied expectations and has been only around 60%. And there have been bad years, when almost every M&A attempted destroyed shareholder value. But that’s about as much as one needs to know about M&As. From Accenture to McKinsey, from BCG to Booz Allen Hamilton, from Stanford to Wharton, there is little debate left globally on whether M&As add to shareholder value... they don’t. In fact, most destroy it with surety. But then, why do CEOs globally still go ahead and attempt mergers and acquisitions?
One line of thinking compares the M&A behaviour of CEOs to cigarette smoking. There’s no debate on whether smoking causes cancer. It does. Yet, one would find pretty sane, intelligent and bespoke individuals indulging in the exercise. Logically understood, the attitude is quite addictive, whether for smoking or for M&As. CEOs get infatuated to the M&A dopamine high and the rush of seeing their companies’ turnovers double, even triple overnight – and not because of any strategic moves they might have made in the marketplace, nay any innovation, or a product launch. But simply, an M&A; “The bigger the ego of the acquiring company’s CEO, the higher the premium a company is likely to pay for a target,” write Dr.Mitchell Marks and Dr. Philip Mirvis in their 2011 paper in Journal of Business and Psychology, quoting varied research studies. There’s another line of thinking that says that as the average probability of success of a new business anyway falls between 10% and 30%, an M&A activity should not be considered anything different. The success rate of an M&A exercise mirrors what one would expect from a new business venture; and therefore CEOs should necessarily take it up, as there are 10% to 30% M&As that are superlatively succeeding too in maximizing shareholders’ wealth. Be that as it may,
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
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Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
