Merger and Acquisition

M&A is one of the biggest activity in the corporate world. It takes lots of time and interest of the senior management in the industry, banks, lawyers, accountants etc. M&A is important for many reasons. One of the reason behind this is the growth of the acquirer company inorganically. companies can grow rapidly using this approach. though it has its problem too. It brings different operation processes, accounting practices and corporate cultures together. Solving these problem is not easy and if proper planning is not done before the M&A, it can hurt the combined entity severely. A lot of academic research has been done (and it is still and ongoing topic for researchers) to identify the benefits of the M&A but it is difficult to estimate the real benefits. Some of the researcher have tried to calculate average gain for many mergers over a period of years. This does not seems to be in efficient way. There are a few other researchers who have tried to follow a few mergers from their first public announcement to the completion. though the later gives an tool to understand the merger activity closely but it can not be generalized. one of the biggest problem in evaluating the gain/loss of the merger is the existence of target company is lost in most of the cases. so it is very difficult to find what is happening to the target or acquirer company as individual. one can not say the growth or slowdown after the merger is because of the merger activity or some other reasons. Other problem is the change in the accounting practices. It makes lots of difference in the valuation of the business and sometime it can be too big. when the accounting practices changed in USA, AOL had to show loss of $54 billions as a loss of goodwill in TimeWarner merger case. sometime because of the competition policy, some of the divisions of the target company needs to be divest so target company does not remain what it was acquired originally. sometime management also plays the finger-pointing game inside the company after acquiring a new company. they tend to put higher overheard and administrative cost because of the merger of the target company since there is no mechanism to find out the real data, success/failure of the merger can not be evaluated easily based on the annual reports. many other factors need to be taken into account. Many a time there are some of the hidden agenda of the management behind the merger activity. management buy target company to strip it of good assets and then sell the bad assets after a few years and in turn making their company stronger. in this case there is no way merger can be evaluated. Despite all these problems, careful scrutinizing the annual reports and press release etc gives an overall idea about the success of the merger.
Mergers are not always good for the shareholders of the acquirer company because most of the time target company share prices go up because of the competitive bidding my multiple companies and legal, consultancy cost also goes up in many of the cases.
My experience of dealing with post merger activity has been a big learning about how the management work and react to these activities.