Many companies generate value by growing through mergers or acquisitions. When, often after months of negotiating, the parties concerned announce that they have reached an agreement and state the purchase price, the benchmark is set against which the success of the transaction will be judged. The price, including the strategic premium, reflects the negotiating power of both parties and their expectations of the potential synergies. Post-merger integration cannot turn a bad deal into a winner; however, if properly implemented, it can realize the estimated synergies and often identify additional potential. Successful post-merger integration also stabilizes the organization and secures the business, which prevents the merger from causing short-term falls in profit that can end up destroying more value than the synergies create.
In the first edition of this book, we estimated the capital market's expectations on the value creation of a merger by the development of the total return to shareholders in both the short term (five days) and the long term (two to three years). In that edition, our chart showed that only half of all mergers in the chemical industry succeeded in creating value. We have updated this analysis, and worryingly the success rate has fallen to just 40 percent (Fig. 25.1). We believe that much of the blame for this can be placed on poor post-merger management rather than on poor deals being struck in the first place.
There is, of course, no instant recipe for success in post-merger integration. Companies must find the path that is right for them, even if they have enjoyed successful mergers in the past. Each situation is different, with industry dynamics, the legal context, and the starting position of the companies all playing a part in determining the best approach. Perhaps the only universal truth is that careful planning and staying power are certain to be indispensable.