Creating growth through M&A in the telecoms sector is being stifled by lack of joined up thinking in the M&A processes, says a firm of leading lawyers. Guy Daniels reports.
Global businesses are not realising the full potential of cross-border mergers and acquisitions as a means of driving growth due to weaknesses in the deal process. That’s according to a new global study, published by international law firm Eversheds. What’s needed, they argue, is a more holistic approach and stronger connections between the planning, completion and post-deal integration phases.
Stephen Nash, partner in the technology, media and telecoms group at Eversheds, said that the current economic climate has made the business of doing deals much tougher:
“The research highlights an acute awareness of risk in the process. However, company boards are under pressure to secure growth and M&A is an essential business tool for achieving this, in particular for organisations thinking about tapping into or increasing their penetration in new international markets.”
The research was conducted between May and July 2012 and involved more than 400 multi-national businesses from 41 different countries that have worked on cross-border M&A deals in the past three years.
It found that nearly half (43 per cent) of businesses believe that the most common cause for deals not successfully achieving their goals is due to a failure to address post deal integration from the early stages of deal due diligence, with 22 per cent of telecoms companies surveyed saying integration did not go as expected at the time of the deal closure.
In addition, only 53 per cent of M&A deals done by companies in the telecoms sector involved the legal team before due diligence. However, this is despite the fact that General Counsel can provide essential input during the assessment of potential deals and half of telecoms respondents saying they had spotted potentially damaging issues early enough to caution management about proceeding with the deal.
According to Nash, less experienced buyers are finding the process challenging but even those with a wealth of knowledge believe that there are improvements to be made:
“Businesses need to start joining the dots between the different stages of the deal cycle to move the focus from just simply ‘doing the deal’ to thinking about life for the business beyond the deal.”
Eversheds report, ‘The M&A Blueprint: From Inception to Integration’, recommends (not surprisingly) that appropriate proper legal advice at every stage in the deal cycle is critical to the success of M&A transactions. Its research found that 38 per cent of deals where the in-house team were brought in too late suffered problems during integration.
As to why firms don’t reach for their lawyers during the post-deal integration phase, 83 per cent said they didn’t use external lawyers due to cost. Can’t argue with that… although Eversheds suggest this might be “false saving”. Well, they would.
Other findings show that 59 per cent of all respondents said they had spotted potentially damaging issues early enough to advise that a deal should not go ahead. The reasons General Counsel would advise not to proceed with a deal were a mix of regulation and commercial concerns. 45 per cent cited illegality or regulatory issues (e.g. bribery, competition and antitrust) and the same percentage cited commercial concerns (e.g. price and valuation, litigation risk, and integration costs).
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