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Doing Mergers and Acquisitions Right

A Scenario Systems White Paper


Every year, tens of thousands of companies decide to tie the knot, spending vast sums between them. According to McKinsey, the combined value of mergers and acquisitions agreed in the first seven months of 2007 exceeded the previous year!s record total – US$4 trillion. Later in the year, the sub-prime lending crisis struck, cutting the numbers of new deals significantly. In the last four months of the year, 50 percent fewer deals were announced than in the same period of 2006.

However, despite all this investment, mergers and acquisitions don!t always go smoothly. Estimates suggest that 50 percent or more of corporate marriages fall short not just of the participants! expectations, but those of their customers and shareholders.

Some "couples" never even make it to the church. As the engagement settles down, they discover things about each other they didn't know before – things they don't like. The relationship ends, but not without cost. The end of merger negotiations between Renault and Volvo in 1993 temporarily destroyed a fifth of the latter's value, for example.

On other occasions, the marriage goes ahead, but ends in stalemate or acrimonious divorce. After a while, the romance fades. The parties continue to share a home, but live separate lives. As executives struggle with the situation, service to customers falters, business suffers and share prices tumble.

AOL's US$147 billion acquisition of Time Warner, completed in 2001, reduced the combined business!s valuation by more than US$210 billion over three years.

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