Australian banks and financial institutions must factor in the risk of failure when considering mergers and acquisitions, warns leading management consultants PA Consulting Group.
According to international research conducted by PA, more than 70 per cent of acquisitions fail due, predominantly, to poor post deal management.
"The Australian banking and finance sector is in a state of flux as it awaits the Federal Government to deliver on recommendations made by the Wallis inquiry," said Paul Lahiff, Head of Financial Services, PA Consulting Group. "However it is clear that mergers and acquisitions will be part of the rationalisation and development of our financial sector."
"At no time, however, during the current debate, has anyone considered the high risks associated with mergers and acquisitions. Our research shows that most organisations are particularly unsuccessful at managing the integration of two organisations after satisfying the search, strategic fit, valuation and deal criteria," he said.
"Procrastination in the six month post deal period has been identified by the London Business School as a feature of 100 per cent of failed acquisitions."
According to the survey 80 per cent of buyers have no formal post-acquisition plan with buyers frequently:
- overlooking the need for continuity throughout the process
- getting the timing of mission critical activities wrong
- failing to allocate responsibility for various outputs
- indulging in inappropriate intervention
- failing to appoint managers to lead the integration process or gain control in essential areas
- failing to measure what is being achieved.
According to PA, however, the 30 per cent of organisations which successfully manage the acquisition/merger process were characterised by clear strategy, solid implementation, effective communication and the sensitive handling of the HR issues.
"Acquirers must re-align their strategic plans formulated prior to the sale in the post-transaction period. This involves redefining the target, reassessing synergies, reconsidering strategies and shifting the focus of risk analysis," said Mr Lahiff.
"While there are many business critical activities that must be conducted post deal, our research identified the people factors, such as communication and human resources, as the most important aspects in realising a successful acquisition.
"Despite the high risk of failure, there are already some very successful acquisitions in the Australian banking and finance sector including HIH Winterthur's purchase of CIC Insurance, Advance Bank and Bank of South Australia, and Westpac and Challenge Bank," he said.
