• New global study by Eversheds reveals that deal due diligence does not focus enough on post deal integration
  • Little or no focus beyond the deal transaction to post-integration is compromising the benefits and value of M&A
  • Internal processes are as much to blame as external factors

Businesses are not realising the full potential of mergers and acquisitions (M&A) as a means of driving growth due to weaknesses in the deal process. A new global study, The M&A Blueprint: Inception to Integration, which we published today, shows that deal teams need a more holistic approach and stronger connections between the planning, completion and post-deal integration phases.

The study involved more than 400 multi-national businesses who have worked on M&A deals in the past three years. It shows that nearly half (43%) of businesses believe that the most common cause for deals not successfully achieving their goals is due to a failure to address post deal integration from the early stages of deal due diligence.

The report also shows that legal risk is an increasingly important consideration in the assessment of potential deals. General Counsel provide essential input at this stage and more than half (59%) of all respondents said they had spotted potentially damaging issues early enough to caution management  about proceeding with the deal.

The M&A Blueprint: Inception to Integration report sets out the blueprint for success in cross-border deals as identified by deal-makers themselves.  Key areas that businesses have identified as best-practice in the international deal-making process are set out below. 

Inception

  • From the start – 38% of deals where the in-house team were brought in too late suffered problems during integration.
  • Early warning – 59% of all respondents said they had spotted potentially damaging issues early enough to advise that a deal should not go ahead.

Planning and due diligence

  • The crucial stage – 43% said the most common cause of the failure to realise value in transactions was down to avoidable errors in the due diligence and planning phase.
  • Joined up thinking – 70% felt that linking due diligence and integration planning together would help to improve the deal process.

Deal execution

  • What matters most - The reasons General Counsel would advise not to proceed with a deal were illegality/regulatory issues (45%) and commercial concerns (45%)

Intergration

  • A false saving? – 83% did not use external lawyers to a large degree during integration, although they were acknowledged to add value. The main reason for this was cost.
  • Avoid mismatches – 26% felt that the failure to realise value in a recent cross-border M&A deal was due to a misalignment between legal dealmakers and the day to day business team.

The report also found that companies are two and half times more likely to have faced problems with integration if the in-house legal teams were involved late in the process. This is particularly true for those who are less experienced in the deal process, with the report showing that in-house legal advisers who had worked on less than ten deals were more likely to face problems in the integration phase.

Comment:

The current economic climate has made the business of doing deals much tougher, with the research highlighting an acute awareness of risk in the process. However, company boards are under pressure to secure growth and M&A is an essential business tool for achieving this, in particular for organisations thinking about tapping into or increasing their penetration in new international markets.

Our research shows that the overriding factor contributing to the success of a cross-border deal is the presence of a core team providing the ‘connective tissue’ to link all the phases together, taking the deal from the inception stage through to post-completion integration. Businesses need to ensure that they are joining the dots between the different stages of the deal cycle to move the focus from ‘doing the deal’ to thinking about life for the business beyond the deal.

More than three quarters of Eversheds’ deal activity is cross border and we always advise our clients to adopt a project management approach for the life cycle of the deal. This helps them to focus on post-deal integration – and achieving maximum value from the deal - from the outset.

Our findings also show that many businesses know they can do better and want to see best practice in action on each and every transaction.