CEO Survey: Mergers & Acquisitions - the 1997 Business Week Symposium of CEOs

Mergers and Acquisitions: a CEO Priority
Mergers and acquisitions are of primary concern to U.S. chief executives, according to a survey of delegates to the 1997 Business Week Symposium of Chief Executive Officers. More than 70% of the leading CEOs polled in Bain & Company's survey consider mergers and acquisitions to be a critical factor in their companies' long term strategies. From financial services to industrial chemicals to consumer products, mergers and acquisitions activity is on the rise. In 1997, there will have been an estimated 7,500 transactions in the U.S., up from 300 in 1994. In contrast, M&A activity in the '80s peaked at 3,300 transactions in 1986.



More than 70% of the leading CEO's polled consider mergers and acquisitions to be a critical factor in their company's long term strategy.



Mergers and acquisitions have kept management busy during the past two years, with 85% of CEOs responding that their companies had been involved in at least one acquisition or merger during that time period. An even greater number - 90% of the respondents - plan to make at least one acquisition in the next twelve months.
(Figure 2)

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Not Just for Corporate Growth Anymore
Although last year 60% of CEOs considered growth the hot topic, mergers and acquisitions activity is no longer just a means for growth - it has become a strategic tool in itself. Early periods of heavy acquisition activity were characterized by unrelated diversification, but today's CEOs pursue acquisitions to build on current capabilities. Obtaining new products for current channels figures prominently for 74% of CEOs as a reason for acquisition. Similarly, expanding into new geographies for current products is also an important driver for acquisitions, according to 66% of delegates. Acquiring new related businesses and new capabilities factor significantly as reasons for acquisition, while the unrelated diversification of the past is clearly no longer a priority to more than 80% of CEO respondents. (Figure 3)

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figure3: Reasons for Acquisitions

Strategic Fit: the key to success
In today's tighter financial climate, mergers have become more costly than in the past, and the impact on shareholder value is being closely monitored. For these reasons, CEOs are focusing on the strategic issues surrounding the deal. A proposed acquisition must fit into existing corporate strategy, insist an overwhelming number of those surveyed. In fact, a full 94% declared strategic fit to be significantly influential in the success or failure of an acquisition. These company leaders are also very satisfied with their organizations' track records in realizing the imperative of strategic fit in acquisitions; only 13% of CEOs responded that they were less than satisfied with their own organizations' performance in this regard. (Figure 4)

Again emphasizing the role of strategy in acquisition decisions, almost three-quarters of CEO respondents recognized the influence of a strong strategic position of the company acquired in the overall success of the transaction.

CEOs are clearly focused on the strategic issues at play prior to an acquisition, and strongly believe that their organizations are fully competent in their performance in pre-acquisition planning. More than 70% of CEOs surveyed also ranked highly the influence of pre-merger due diligence, deal negotiations and price paid in the ultimate success of acquisitions. Expectations for the merger are set by the outcome of these pre-acquisition financial elements.

figure4

figure 4: Influence of elements on an acquisition's success and CEO's satisfaction
with their own organizations performance.

Post-Merger Integration
After the merger is completed and the headlines have faded, it is not uncommon for companies to experience a shortfall on expectations. Although 75% of those surveyed responded that post-merger integration is an influential element of a successful acquisition, a smaller group - 59% - were satisfied with their organizations' track records. It is not surprising then, that the capabilities of new management fall under tough scrutiny. Only about half of those surveyed were satisfied with the track record of acquired management.

Although 66% of CEOs consider it to be a target for acquisition failure, "cultural fit" also falls short. Only 59% are satisfied with this element of an acquisition.

Achieving M&A Success
In summary, CEOs rate mergers & acquisitions as highly important to overall corporate strategy. Corporations are increasingly pursuing acquisitions, specifically those focusing on existing and related businesses, with the goal of finding a strong strategic fit.

Consistent with Bain & Company's work with many top tier corporations, these findings indicate that strategy is the driver of management decisions which will direct the success of a company's future.