Executives Report that Mergers and Acquisitions Fail to Create Adequate Value

Deals Often Come Up Short on Delivering Anticipated Revenues, Expected Cost Savings and Successful Integration of Information Technology

NEW YORK; June 14, 2006 – Despite the rapid pace of mergers and acquisitions activity, companies executing these deals frequently come up short on creating expected value, according to a survey of more than 400 U.S. and European corporate executives published today by Accenture. The survey also shows that more than half of the most recent deals in which the executives have participated have been cross-border transactions.

Less than half of executives said that their most recent deals achieved expected cost-saving synergies (45 percent). And information technology (IT) integration was noted as a particular challenge – with only 30 percent of respondents believing that they had achieved successful IT integration in their most recent cross-border deal. Meanwhile, barely half (51 percent) said their deals achieved expected revenue synergies.

“Missing synergy goals by even a small percentage can mean losing hundreds of millions of dollars of shareholder value,” said Art Bert, a senior executive in Accenture’s Strategy practice. “The most successful deals are approached with a comprehensive integration plan, with core team continuity through most of the transaction life cycle, from target identification, valuation, due diligence, deal execution, pre close planning, and post-closing integration.”

Of those executives who have been involved in a recent transaction, 58 percent said their company’s latest acquisition was a cross-border deal. Roughly half of the executives expect companies in their industries to make cross-border acquisitions over the next five years in order to guarantee profitability (55 percent) and hit strategic corporate targets (49 percent), while about one quarter expect deals to be undertaken merely to survive (26 percent). Over 70% of senior executives believe identifying and executing on cross-border M&A opportunities is more difficult than it is for domestic transactions.

“There is a growing body of evidence that most large transactions fail to create shareholder value for acquirers,” Bert said. “But what makes M&A so alluring is the less common, successfully executed deal that allows an acquirer to create shareholder value far beyond what its peers and competitors can achieve. This is why we see most high-performing companies undertaking a disproportionate number of deals relative to their industry peers.”

Nearly one third (31 percent) of the executives said that 20 percent or more of their companies’ total revenue growth in the last three years can be attributed to acquisitions, while 83 percent said that at least some of their firms’ growth has been fueled by deals. When asked how much revenue growth would come from M&A transactions in the next three years, nearly one third (30 percent) of the executives said they expect the growth to be 20 percent or more. Meanwhile, 88 percent said they expect at least some of their firms’ growth will come from acquisitions.

“M&A remains a vital strategic tool for corporate executives worldwide,” Bert said. “Yet management teams must not be misled into thinking that deal closing is a prize, in and of itself. “Rather, evaluating and integrating an acquired business in a manner that delivers a superior return on investment, demonstrating that a transaction is really the best use of shareholders’ money, is what sets a good deal apart from a bad one.”

Indeed, corporate executives believe orchestrating and executing the integration process is the most critical factor determining merger and acquisition success (56 percent for domestic transactions and 47 percent for cross-border deals), followed by conducting due diligence (42 percent for domestic transactions and 43 percent for cross-border deals). Achieving an optimal price for a deal was ranked only fifth (20 percent for domestic transactions and 19 percent for cross-border deals) by executives considering the elements most critical to a transaction’s success.

One particularly encouraging insight from the Accenture study was that most corporate executives think their companies did a good job with employee retention and customer relations during their most recent transactions. A large majority agreed or strongly agreed that valuable employees were retained from both the target company (72 percent) and the acquiring company (77 percent). Most also agreed or strongly agreed that their deals had no negative impact on customers of the target company (67 percent) or the acquirer (73 percent).

About the Survey
Accenture and the Economist Intelligence Unit surveyed 420 corporate executives from the United States, Germany, the United Kingdom, Sweden, Norway and Finland to gain insight into their merger and acquisition strategies, processes and experiences. The study was conducted in March 2006, with respondents in each country identified by the Economist Intelligence Unit. The complete results of the survey are available at www.accenture.com/Global/Research_and_Insights/By_Subject/Corporate_Strategy/default.htm.

About Accenture
Accenture is a global management consulting, technology services and outsourcing company. Committed to delivering innovation, Accenture collaborates with its clients to help them become high-performance businesses and governments. With deep industry and business process expertise, broad global resources and a proven track record, Accenture can mobilize the right people, skills and technologies to help clients improve their performance. With more than 129,000 people in 48 countries, the company generated net revenues of US$15.55 billion for the fiscal year ended Aug. 31, 2005. Its home page is www.accenture.com.

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Jill E. Posnick

+1 (917) 452 4947

jill.e.posnick@accenture.com

Jeffrey A. Schoenborn

+1 (917) 452 4823

jeffrey.a.schoenborn@accenture.com