Successful Mergers and Acquisitions in China

Fri, 14 Nov 2008 08:44:58 EST

In 2007, the 63 disclosed cross-border M&Atransactions had a total transaction value of US$18.67B, an increase of 105.4%over the previous year, however, there is a cautionary story behind theheadlines.

At a recent China Economic Review conference entitled"Mergers & Acquisitions - How to avoid the pitfalls and make a success ofM&A operations", IMS was surprised to learn that less than 20% of allcross-border M&A activity was deemed to be fully successful. According to Ben Qi, Senior Counsel forIBM Greater China, 53% of M&A fail to meet purchaser objectives due to poorintegration. This HR issue wasalso backed up by Mercer and sited by Alvarez & Marshall as a pre-dealbreaker.

Companies like IBM who are involved in acquisitions ona regular basis have set up permanent Integration Teams to ensure post-mergersuccess. The author is also awareof a top private equity firm that has a 50 strong Operations Division dedicatedto the integration process. It ispretty obvious that having sufficient HR resources (and leadership) for theintegration phase is essential, but it is also hugely valuable to have thatteam involved as early as possible before the deal is struck.

A similar theme has been discussed by journalist PeteSweeney in the November Issue of EurobIz, the journal of the European Chamberof Commerce in China. Significantdifferences in business cultures between acquiring and target firm mean thatgreat attention must be paid to the integration phase to ensure a healthy,integrated operation. DennisUnkovic, a partner at law firm Meyer, Unkovic and Scott suggests hiring aChinese CEO to run the operation on the ground as an alternative to anexpensive expat that flies in 1 week out of 6. This may be a cheaper solution but not alwayssuccessful. This is anobvious area where a China experienced IMS Interim Manager residing permanentlyin China can help, it is just a case of convincing Corporates and Equity Housesof the value of bringing resource onboard before the deal has been struck.

Other key areas are the retention of key Chinese staffafter the merger or acquisition, especially sales staff as considerable amountsof business is done via personal relationships in China. Internal relationships should beconsidered and looking at achieving harmony between merged teams. IMS Interim Managers have 5-10+years experience in China working at C-Level and Senior Management level andhave considerable experience in developing mixed teams. Many have decided to reside permanentlyin China and have embraced the culture. Over 20% of our Managers are fluent in Mandarin and another 64% have conversational mandarin skills.

For more information on IMS go to http://www.jmgemini.com/ims

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Successful Mergers and Acquisitions in China