merger

The company where I have been working for more then 20 years is going to merge. Our managing director, chairman, president, ceo or whatever you call him announced with great enthusiasm the merger. It seems that a lot of staff who I came into contact with also were enthusiastic. Since my pension is imminent I could not care so much, but I was amazed about the enthusiasm, because in my opinion mergers are in more cases failures then success and also especially supporting staff is more vulnerable for dismissal in mergers. Anyway things are going on and next week there are 3 days functions in working time about this merger. Business is apparently booming. Even though I do not plan to attend, I usually do not attend to these mass congregations, I found that so surprising that I decided to research the internet to test my statement that more mergers are becoming failures then success. So I typed into Google the search term Merger Success Rate and here are the first four results I got:

The first one is from Google answers:

Thanks for the interesting question. 

I found a wealth of statistics out there about the success/failure
rate of mergers in the business world....

The bad news: Everyone uses a slightly different criteria for
"success" so no two sets of numbers match exactly.

The good news: While the numbers don't match exactly, they all come in
around the same range - that about one-third of mergers succeed while
two-thirds fail.

Here are some various sources that I found:

A tentative model of management accounting and control in the
integration of mergers and acquisitions
URL: http://www.handels.gu.se/epc/archive/00004170/01/Antwerp,_Belgium_(2005).pdf
Quote: "However, approximately two out of every three M&As fail to
achieve the intended goals which were the stated reasons for the
business deal."

Strategic Management Research Center
URL: http://www.csom.umn.edu/Page1324.aspx
Quote: "At the same time, the success rate of M&As has been poor ?
some estimates put failure rates as high as 60?70%."

Mergers a rite of passage in life of U.S. companies
URL: http://w4.stern.nyu.edu/news/news.cfm?doc_id=3741
Quote: "Some studies show that 50 to 70 percent of mergers fail, in
that they don't live up to their financial promise."

The next site is from Merill Datasite, who advises merger. For obvious reasons they do not say anything about the success rate.
The next site is from CNN, it is slightly more optimistic and states Mergers fail more often then Marriages. It goes on to state:

Divorce rates vary according to country, educational levels and income, but generally hover between 40 percent and 50 percent in North America and Europe. Conversely, a 2004 study by Bain & Company found that 70 percent of mergers failed to increase shareholder value. More recently, a 2007 study by Hay Group and the Sorbonne found that more than 90 percent of mergers in Europe fail to reach financial goals.

"If the definition of a successful merger is driving up shareholder value, then their failure rate is far north of 50 percent," says Lawrence Chia, a managing director of Deloitte & Touche in Beijing, China.

The path from the altar is strewn with failed corporate marriages: Daimler and Chrysler, AOL and Time Warner, Shanghai's SAIC Motor Co. and Korea's Ssangyong Motor Co. (which filed for bankruptcy protection this year).

The next site is strategy and business, a site that obviously has a stake to see mergers as succesful. Their observation is:

Most mergers fail. It’s an assumption repeated so often that few would dare question it. But is it true?

During the 1990s, it was indeed true — confirmed by a 2001 Booz Allen Hamilton study that found that two-thirds of all mergers fell short of expectations. In the intervening years, however, much has changed. The Internet boom and bust made their mark. New regulations brought far greater scrutiny — and accountability — to senior management and boards of directors. Merger activity has come and gone and come once again.

Today, in an altered business landscape, a close look at current merger activity suggests a different point of view. Companies no longer should expect or accept the probability of merger failure. Although our observation is, admittedly, anecdotal.

So based on anecdotal observation they think that mergers are now doing better. The next site, managing leadership states the following:

We all know that merger and acquisition (M&A) activity has a dismal success rate. The recent spate of this activity doesn’t promise to improve on that, much.

The question remains, though, why? If the logic behind these proposals is persuasive enough to carry the decision-makers behind them along to execution, why do so many of them fail?

One reason offered is that many of these deals appear during periods of cheap money or excess cash reserves. That is, they are, at bottom, simple manipulations of cash-flow; a sort of arbitrage exploiting anticipated disparities in present and future interest rates. Another, hinting perhaps more closely at the truth, suggests that the quasi-sophisticated number-crunching that generates a lot of this activity misses the key data and fundamental factors that affect the potential for success.

Also this is not a very positive statement. The last site I quote here is a blog that turned up in the search and this one states:

• 70% Failure Rate: McKinsey:“Anyone who has researched merger success rates knows that roughly 70% of mergers fail.”
• 70% Failure Rate: A 2004 study by Bain & Company found that 70 percent of mergers failed to increase shareholder value.
• 90% Failure Rate in Europe: A 2007 study by Hay Group and the Sorbonne found that more than 90 percent of mergers in Europe fail to reach financial goals.
• Failure Exceeds 50%: "If the definition of a successful merger is driving up shareholder value, then their failure rate is far north of 50 percent," says Lawrence Chia, a managing director of Deloitte & Touche in Beijing, China.
• Failure Exceeds 50%: In Merrill DataSite’s survey of 100 worldwide executives, the majority said that mergers are successful 26%-50% of the time in their experience. 

Reasons For Failure

Assuming that mergers are intended to increase shareholder value, there are many headwinds to overcome before shareholders benefit.

• Shareholder Dilution: “…when one company acquires another using its own stock as currency, as commonly happens today, shareholders' stakes in the acquiring firm typically decline.”
• Cost of Golden Parachutes: “Company executives can pocket up to 8% of the merger proceeds” according to Michael S. Kesner of Deloitte Consulting. 
• Executive stock options vest immediately in the event of a merger. 
• Inaccurate estimation of synergies: The McKinsey report cites 32% of merged companies saying their synergy estimates were inaccurate. 
• Integration Risk

So these are the results I got. It is not a real great result and certainly not something I would offer 3 days for celebration for. I would rather be highly concerned and would start asking the directors of the company critical questions. But as I say I will be on pension shortly and the only thing that remains for me to do here is to wish the company good luck!!