After the deal

Doing deals is easy. As mergers hit record levels, now comes the hard part

The merger wave, which in 1998 was a predominantly American affair, is now sweeping over Europe. Cross-border (international) deals, such as Daimler-Benz's takeover of Chrysler, accounted for a quarter of mergers in 1998; more are expected as firms go global.

In many cases this consolidation makes sense - at least on paper. But just as certain as the flow of deals is that most will be failures. Study after study of past merger waves has shown that two out of every three deals have not worked.

Success in the future will depend more than ever on the merged companies' ability to create added value. And that will depend mainly on what happens after the deal has been done. Yet many deal makers have neglected this side of the business. Once the merger is done, they simply assume that computer programmers, sales mangers and engineers will cut costs and boost revenue according to plan.

Yet, just when post – merger integration has become decisive, it has become harder to pull off. Not only are modern firms complicated global affairs, but executives are putting today's deals together in a hurry. Few give enough thought to the pitfalls.

One set of obstacles is 'hard' things, such as linking distribution or computer systems. In particular, many recent mergers have been undone by the presumption that information technology is easy to mesh together.

More difficult are the 'soft issues'; and here the same word keeps popping up - culture. People never fit together as easily as flow charts. Culture permeates a company, and differences can poison any collaboration. After one large US merger, the two firms had a row over the annual picnic: employees of one company were accustomed to inviting spouses, the others were totally against the idea. The issue was resolved by inviting spouses only in alternate years.

Two new things have made culture clashes harder to manage. The first is the growing importance of intangible assets. In an advertising agency, for instance, most of the value can walk out of the door if key people leave.

The second new thing is the number of cross-border mergers. In this area DaimlerChrysler may prove to be an interesting case study in differing management cultures. One worry is compensation: Chrysler's pay levels are much higher than the German company's. So a US manager posted to Stuttgart may end up reporting to a German manager who is earning half his salary.

Nor is pay the only difference. Chrysler likes to pride itself on its flexible approach, where speed and ingenuity are prized. When designing new models, teams of engineers, designers and marketing people work on each model. Daimler-Benz has a more traditional structure, in which designers and marketing people mix less and engineers are in charge.

Some recent deals will no doubt prove a stunning success. Nevertheless, there are three ominous signs about the current merger boom. First, much of the attention seems to be on the deal itself rather than the integration that must follow. Second, many deals are rushed. And third, mergers have too often become a strategy in their own right.

So the things that are so impressive about today's mergers - their size, complexity and daring -could count against them if the economy turns down.

From The Economist

Дата добавления: 2014-10-15