Measuring Up: Assessing M&A value

Some years ago I had a conversation with the Executive VP of Strategy and M&A at a multi-billion company in high-tech. He had been asked by his Board to review their M&A activity over the previous ten years: what deals had they done, and how had they gone? The man’s unease was visible, and genuine as he told me the outcome of his investigation. Like most organisations, their M&A performance was mixed: Some came out as ‘green’, a few ‘red’, and most ‘amber’. “My problem,” he told me, “is that I have absolutely no idea why the green ones are ‘green’, and what made the red ones ‘red’! How am I going to present that message to my CEO and Board?!”

Of all the challenges posed by mergers and acquisitions, one of the greatest is how to accurately, realistically assess performance. Measurements and benchmarks abound: Determining the success of lower-level integration activities and their impact on the business post-close is fairly straightforward, and looking at longer-term high-level metrics such as share price and ROCE are also relatively standard. But do any of these accurately, consistently tell you if that particular deal was a success?

Our discussions with businesses of all shapes and sizes reflect this issue: While most make strenuous efforts to set M&A performance expectations through robust financial business cases and the like, very few follow through on assessing the deal’s performance against this same business case one, two or three years later. In fact, our own research revealed that only 54% of acquirers – barely half – regularly conduct formal reviews to measure M&A success. At the same time...