Takeover deals are failing to add value - KPMG

More than two-thirds of company takeovers fail to add value for the company making the acquisition, according to a survey carried out for accountants KPMG.

The international study, which involved about 20 Irish companies, found that only 31 per cent of deals were value-enhancing, with a further 43 per cent neutral in terms of their effect on the purchaser. The study also showed that European companies were better than their American counterparts at concluding deals that add value for their shareholders.

Robert Dix, head of transaction services at KPMG in Ireland, said European firms, and particularly those in Ireland, have a good understanding that the culture has to work in any company merger. "If you look at examples of companies like CRH and Grafton, they work very well in this area," he said. "They court companies for a considerable time before doing a deal and get to know them."

Pressure to do deals is growing and the climate has become more competitive with the growing influence of private equity in the mergers and acquisitions market, according to the study carried out for KPMG by Mori.

Gopal Ramanathan, chairman of KPMG global transaction services, said the study sought to understand "what acquirers are doing to enhance value from their acquisitions and what challenges they face in taking control of the target business".

Despite the traditional maxim that companies should not pay for synergies, the survey found that, on average, 43 per cent of the targeted synergies were included in the purchase price - and the bigger the target, the higher the percentage of the synergy target included in that price.

The survey showed a significant difference in post-deal planning, with 95 per cent of private equity houses starting to plan for managing events after any deal before signing compared to just 59 per cent of corporate bidders.

One of the advantages of early planning to emerge was the identification of potential dealbreakers, with a majority of respondents saying they had walked away from deals in the past due to anticipated difficulties in merging companies.

"There is huge pressure on management to do deals," said Mr Dix. "However, the skilful ones are those who know when to do a deal and when not to."