The merger deal is done, now for the hard work

The spate of mergers and acquisitions in Europe and the US shows that industry appears to have shaken off the doubts of the early 1990s in favour of the aggression seen in the 1980s. All the signs are that this attitude will persist, with experts predicting more big deals.

Whether or not they will be successful is, of course, another matter. Kenneth Smith, a vice-president with Mercer Management Consulting, points out that in contrast with the financially driven merger mania of the 1980s, the current driving force is strategy. "In many cases, mergers and acquisitions are being driven by fundamental changes in industry, economics or competitive dynamics, such as deregulation in utilities and vertical integration in media and entertainment," he says.

Historically most deals have failed to create value, and while Mr Smith suggests that the current round stands a much better chance, this won't always be the case. Half the deals of the 1990s are failing to create shareholder value, according to Mercer, whose research also reveals that success does not depend on the strategic rationale, the price paid or the structure of the transaction. Instead, says Mr Smith, "the merger game is won, or lost, after the deal". So although a lot of effort has gone into creating the deals struck recently, the real work lies ahead in "post-merger management". Accordingly, Mr Smith offers three themes for managers to bear in mind as they work to make the most of deals.

First, they must establish "a shared, ambitious vision". He says a successful vision has three key components: identifying the straightforward value in the deal, such as tax advantages and purchasing scale; finding all the physical synergies in manufacturing, distribution and other operations; and uncovering the not-so-obvious "future options" that can contain the real benefits. These options, "if they are incorporated into a long-term strategy, often become a deal's most important source of value", adds Mr Smith.

Second, managers must develop a comprehensive integration plan that is aligned with the vision. Too many merged organisations under-manage the change process, says Mr Smith. Once a deal is closed, he explains, senior management attention tends to give way to "short-term tactical issues more related to sticking the two organisations together than to creating value for shareholders".

Finally, they must carry out the transformation "in a fast and focused manner", not just for financial reasons but also because enthusiasm wanes as time goes on. "Change is easiest to implement during the first days," concludes Mr Smith.