by Jonas Röttger – PhD student FINDER Project
The current global state of Mergers and Acquisitions
Mergers and acquisitions (M&A) is an annularly multi-billion dollar business that grows constantly. Current figures supplied by the Institute for Mergers, Acquisitions, and Alliances (IMAA) indicate a long-term growth trend in the number of transactions per year. Even though the number of transactions has dropped by 8% in the last year, the value per transaction has increased by 4%, implying a boost of high-priced deals. A recently published study by Deloitte polled 1,000 executives (750 at US-headquartered corporations and 250 at domestic-based private equity firms) of which 79% anticipated an increase in M&A deals in the upcoming twelve months. In summary, M&A is an influential and growing part of business activities. From an academic perspective, however, the question remains; why exactly the field of M&A is constantly expanding despite the often-cited low success rates.
The current gap in M&A research
Research indicates that M&A events can lead to pervasive outcomes for companies and individuals. History shows that more than half of all M&A deals fail to meet their financial expectations. Assuming rational management the high failure rate is problematic to align with a balanced risk appetite strategy of a company. Being aware of low chances of success should have decelerated non-organic growth and pushed firms towards different strategies. However, the average volume per transaction has steadily increased. Thus what is driving firms to continue these high-risk approaches? Academia struggles to deliver explanations for the drivers of acquisitions’ outcomes and there is ambiguity about which indicators to take into consideration when evaluating acquisitions. So do studies omit information if they attest M&A to be seldom value-adding? To tackle these blind spots the Warwick Business School hosted a conference to bring together practitioners and academics. For two days they were discussing future trends in M&A and exchanging the latest research.
Learnings from the conference
The conference was addressing four different research angles on mergers and acquisitions. These were strategy and stakeholder management, behavioral dynamics and technology, the role of context in M&A, and best practices in tech M&A. Every topic was covered by a practitioner and an academic each delivering a keynote which was followed by paper presentations. Finally, the academic and the practical keynote speaker provided feedback on the papers and the floor was opened for discussions. Giving the general setting of an academic conference, the fact that researchers were able to receive feedback from practitioners was an interesting approach to check for relevance beyond the academic community. This presented a challenging but fruitful opportunity for presenting researchers.
What is new on the practitioners’ side?
Practitioners from different occupations participated in the conference: M&A consultants, employees working in M&A departments of corporations, and businesses that provide software solutions to support M&A target selection and integration processes. A general trend is to bring decision-support systems into M&A and to analyze data that goes beyond financial figures. Consultants gave insights on how they applied automated analysis to advice companies on the required skillset for specific vacancies. By analyzing LinkedIn profiles of employees working for successful competitors they were able to derive gaps in terms of positions, functions and skillsets for their clients. This showed how publicly available data can be transformed into advisory information for talent acquisition. Although the availability of data has to be increased as well as long-term studies will have to proof accuracy and precision of such automated decision-support systems.
In addition, a cloud-based platform that supports, tracks and advices on decision-making in M&A was presented. This software underlines the general trend of decision-support systems and potentially represents a great opportunity for researchers to get fine-grained data on complete M&A processes. Thereby an end-to-end view on acquisitions could be gathered empowering a holistic perspective.
What is new in the academic debate?
Academic contributions focused on different stages of the M&A process. For instance presented research provided insights on how the likelihood of becoming a target is related to the number of stakeholder relations, how the involvement of financial advisory influences the bidding process and how the codification of information and organizational experience affects the post-merger integration process. However, a general trend is showing that academics are acknowledging the complexity of M&A by applying new research angles. Academics were stressing former relationships of targets and acquirers in forms of alliances, shared clients and business agreements. The idea to look at relations as value-creating streams enhances the research debate by adding a systemic perspective.
By applying systematic approaches, such as network methods, on an individual level even more insight could be generated. Especially in post-merger integration processes: Who is interacting with whom in which projects? As presented by practitioners openly accessible data sources (e.g. LinkedIn) might be a starting point to explore this possibility. However, this data has its limitations and network-based approaches most likely benefit from access to companies’ data. Accessibility of data is a general limitation of M&A research which will be discussed in the subsequent paragraph.
Practitioners and Academics – Where should they meet?
Empiric academics rely on snapshots of fragmented parts of an acquisition to derive at conclusions. That is rooted in the academic need to develop models that balance the number of variables to the number of observations and the mere fact that access to data is often limited. The quality and relevance of research depend heavily on the access to data. Collaborations between practitioners and academics can foster understanding of aspects that can only be obtained by studying firms from the inside. Moreover, these insights can be transformed into guidance for decision-making which provides support in target selection, target evaluation, deal-making, and post-merger integration. Researchers can offer firms additional data as well as analytical tools and skills. Furthermore, researchers are interested in finding the real cause which is often difficult to detect if a company is in the middle of an M&A process. There is a need to communicate these abilities and proof their incremental value.
Academics which aim at developing and proofing theories want to build models that generalize from observations and have predictive power on new cases be applicable on new cases. With more and more tools that formalize and structure M&A processes and generate data, the need and the opportunities for academics to apply their methodological skillset will rise and the general understanding of M&A will improve. However, if the academic community is missing the inside perspective they risk not gaining leverage on ongoing debates in M&A.
Collaborations between academics and practitioners could help to close the gap in M&A research and empower firms to make better decisions. The Warwick Business School managed to take the first step in this field and created a platform for fruitful discussions and development of new opportunities
By Jonas Röttger – PhD student FINDER Project