Merger Mania Will Slow Down. Or Not.
By Glenn Hopkins, Director of Financial Services
The headline in today’s Hartford Courant reads Aetna Widening Expatriate Work, with its acquisition of Bermuda-based Goodhealth Worldwide. But with the subprime loan crises making havoc out of everyone’s M&A plans, the headline could well have read, “Last Acquisition of 2007.” But that all depends on who you believe.
Over in the U.K, this cheery headline — UK Mergers And Acquisitions At All Time Record — is offset with a bit of gloom at the end of the article:
“With lender liquidity tied up in the U.S. sub-prime sector, and ongoing extreme inter-bank lending, businesses will be likely to face a brick wall when presenting extension plans to bank managers for the foreseeable future. And with the full extent of the subprime market yet to be clarified, it is unlikely that the situation will change any time soon.”
In the U.S., the Gray Lady points out, “What a difference a credit crunch made. After comprising 47 percent of deal volume in the United States in May, private-equity deals represented a mere 7 percent of overall deal value in August.”
But that’s the private equity market. For public companies, reports AP, “the four-year bull market has enabled U.S. companies to build record cash stockpiles, with Standard & Poor’s 500 components now sitting on about $600 billion. And, sluggish market periods make it more difficult for companies to raise earnings by organic growth alone - forcing them to make acquisitions.”
So will M&A activity continue its record pace or will it decline? No one knows for sure. What I do know is that whether through leveraged buy-outs or M&A, when two companies come together, there will be massive database compatibility issues.
Here’s Dennis Zeleny in Forbes, stating the obvious:
“Mergers and acquisitions activity continues despite the fact that about three-quarters of mergers don’t work out as well as planned. CEOs and leadership teams who do succeed in making mergers work realize one important thing: getting the combined company to function and execute after the deal is done is almost always more difficult than making the deal in the first place.”
Function and execution will be critical for Aetna when they get an under the hood look at Goodhealth Worldwide’s architecture. Aetna will want access to all of Goodhealth Worldwide’s data and if they attempt a master data management program, the capital costs alone could very well push this deal into the three-quarters that don’t work out category.
Instead, I’d recommend that Aetna simply enhance their existing architecture with an identity resolution solution. With an identity resolution solution, there’s no need to merge and/or purge all the identities both companies possess, when you can easily sift through all the information and keep it all in its native formats for future use.
To the outside eye, it appears that all the usual product, personnel and culture issues that can plague an M&A have been worked out between Aetna and Goodhealth Worldwide. According to Martin Garcia, group managing director of Goodhealth Worldwide, “We see AGN’s [Aetna Global Benefits] acquisition of Goodhealth as a defining moment for us. Our respective business models, product structure, market presence, high-quality service delivery and corporate cultures complement each other very well.”
Martin, if there’s an issue with database compatibility as I predict, please send me an email.
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