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Features

Published July 2005

The CLO’s Role in Mergers and Acquisitions

  

  David Austin

Whether they find their companies in the position of being acquired or their companies are the acquirers, chief learning officers have an important role to play in the success of mergers and acquisitions-even more so today than in the past. And though CLOs often hold additional executive titles with their own challenges (often leading the HR organization), they must devote time and attention to integration specifically influenced by the learning function. What frequent roadblocks to success do companies encounter while going through an acquisition? What can CLOs do to break down these barriers? What can you do to prepare the business for a looming merger or acquisition event?

In 2004, merger and acquisition (M&A) transactions for U.S. companies reached their highest mark since the record year of 2000, as measured by both quantity and value. (See Figure 1.) And although deal flow is down early in 2005, dollar value remains steady. As companies seek to grow market share, expand their technology footprint, improve their geographic reach and create economies of scale, M&A is still perceived by C-level executives and boards as an important option to enable corporate strategies. With relatively low interest rates still available, increased debt availability and growing availability of private and venture capital, it is safe to reason that consolidation through merger and acquisition will continue to thrive. This is not simply a large company or public company experience. In fact, the number of private company transactions jumped 24 percent in 2004 to more than 5,000 (nearly half of all transactions) and activity in mid-market-sized companies continues to increase.

Despite the increase in the number of deals, investors continue to be skeptical of mergers and acquisitions, perhaps because years of data on M&A success rates suggest that these transactions often fail to deliver on expected strategic and financial benefits.

Barriers to Success
It is a common misconception that financial integration and technology integration are the primary reasons for the failure of M&A transactions to reach their full potential. That's not to suggest that they aren't important, or that the CLO shouldn't be thinking about these areas. However, "people issues" such as cultural fit, leadership and poor communication continue to top the list of barriers to success. The May/June 2004 survey conducted by the Economist Intelligence Unit on behalf of Accenture identifies M&A critical success factors as organizational culture and the company's ability to change, and the role of management and leadership. A second study, the PricewaterhouseCoopers Management Barometer, identifies culture and management practices as a close second (to financials) as a major roadblock to successful value creation from M&A transactions. (See Figure 2.) Your own experience with these types of transactions may confirm the significant impact of people issues on success.

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