Companies continue to see mergers as a way to reduce costs through larger size, and such deals appear "to be on the increase" in all areas of the technology industry, according to a report released Monday by consulting company Arthur Andersen.
The report says that many companies enter into such deals without proper consideration over how to integrate the two companies and execute a combined business strategy. The report is especially timely as telecom giants AT&T and WorldCom struggle after large acquisitions.
Many respondents said "they could not continue to grow their businesses without maintaining, or increasing, the extent of (merger and acquisition) activity," the report said.
The key benefits in such tie-ups were listed as economies of scale, business growth, increased global presence and technology acquisition, with 98 percent saying the acquisition of talent was also important.
Seventy-six percent of executives surveyed said they were strongly inclined to increase merger and acquisition activity.
However, 63 percent said that a recently concluded deal had led to a variety of problems, from management difficulties to a drop in shareholder value.
One reason cited for problems was a lack of planning for the merger after consummation. Sixty-five percent admitted they didn't have a plan to execute in such a deal after it was planned, and three-quarters of the respondents admitted they didn't have an integration plan.
Mergers are most likely to fail during the integration process, the survey said. Yet companies apparently fail to realize this, for it also said, "Though top management is intimately involved in negotiating a transaction, many times their focus shifts away from the transaction once a deal is signed.
"The consequences of bad deals--for deal-makers, investors, employees and advisors--can be dramatic," the study said, although it declined to cite any specific examples.
Arthur Andersen surveyed executives from telecom, media and entertainment companies, including 31 companies in the United States and five abroad.