Competitive market diluting benefits of M&A

The rabid competition in the merger and acquisition market has made winning
deals so expensive that companies are now paying up to 43% of synergy benefits
in the purchase price.

The findings, released in a report compiled by KPMG, The Morning
, come after a year of frenetic M&A activity, which saw giants
like O2, P&O and Pilkington Glass involved in deal speculation.

The report found that with companies including almost half of any synergies
into the price, the room for error in delivering benefits from a deal was
smaller than ever.

John Kelly, head of KPMG’s integration advisory arm, said with companies
having to pay such a high premium to make acquisitions, closing a deal was only
half the job.

‘The M&A market has been radically professionalised over recent years,’
he said. ‘The sell-side now runs tight auctions with tight deadlines, and
deal-focused private equity players will more often than not be among the line
up of bidders. Any purchaser seeking to transact deals in this environment is
likely to have to make decisions with limited time and access.’

Kelly added: ‘Waking up on the morning after clinching the deal, the chief
executive is going to be worried about how to make the deal value stick, and the
finance director will want early assurance on exactly what he has bought. The
deal celebration party should wait until the benefits that motivated their
actions are delivered.’

The report, based on the results of 101 interviews with corporate executives
and 20 private equity houses, found that it took companies an average of nine
months to feel they had control of a deal. A 10th of the respondents said this
period could even take as long as two years.

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