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Tech merger wave expected

Merge or perish

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Significantly, 45% of executives polled at technology, Internet and software companies expect their companies to merge within the next three years. It is a telling statistic that indicates that tech company executives are increasingly placing their businesses’ survival hopes on finding a suitor.

WHY MERGERS & ACQUISITIONS FAIL
Nearly half of all technology, Internet and software company executives expect their businesses will enter a merger in the next three years, according to a recent Grant Thornton Business Owners Council survey. Even more of them, however, cite several reasons why merger and acquisition deals fail.

• Poor integration strategies: 65%
• Key employees leaving: 62%
• Lack of compelling strategic rationale: 61%
• Acquiring company did not do sufficient due diligence: 60%
• Poor internal and/or external communications: 59%
• Corporate culture clashes: 55%
• Premium paid for the company was too high: 53%
• Unrealistic expectations of possible synergies: 52%

Sources: Grant Thornton L.L.P. and Wirthlin Worldwide, 2001

Indeed, many start-ups face a future about as promising as the Chicago Cubs’ chances of seeing post-season play, as their venture capital runs out and big-company competitors take their clients. "The big guys are getting into technology and a lot of smaller companies are saying, 'How can I compete with that?' " said Mike Hall, a Grant Thornton managing partner.

A good number of those who predicted their companies will merge also cited several reasons why mergers and acquisitions fail. Sixty-five percent of executives polled said that M&A deals fail because of poor integration strategies, while 62% attributed failures to key employees leaving. Fifty-five percent, meanwhile, said M&A deals fail because of culture clashes.

Notably, only 16% of those executives polled planned a cross-border merger. This reflects the difficulty of reconciling many issues, including cultural, labor and financial reporting. Witness DaimlerChrysler AG’s travails.

Forty-one percent of executives polled expect to pursue international strategic alliances rather than mergers. These provide some of the increased global marketing and manufacturing benefits of cross-border mergers, but are easier to exit than mergers.

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