“There is a tide in the affairs of men, which taken at the flood, leads onto fortune.”
I was reminded of Brutus’s memorable observation in Shakespeare’s Julius Caesarwhen reading about the attempted acquisition of Bovis Homes by the house builder, Galliford Try. It is an opportune time for Galliford Try. Bovis Homes is under a cloud. Its pursuit of growth has resulted in criticisms of poor operational performance, a litany of customer complaints, the loss of its CEO and a fall in its share price. Little wonder that Galliford Try has made a pass.
The manoeuvrings in the housing market are of interest beyond the construction sector. The UK has historically experienced more Merger and Acquisition (M&A) activity than many other advanced industrial countries. Indeed, the UK is expected to record £70 billion worth of M&A deals in the first quarter of 2017 – £16 billion more than the same period last year. M&A can bring benefits. The company making the investment via an M&A may obtain new distribution channels, new technologies and new skilled employees. There may be potential for reducing costs by cutting duplicated functions. At a general level, the market for corporate control should serve to drive up performance.
Some companies are good at M&A and can make a success of it. Yet M&A activity frequently disappoints. Approximately 80 per cent of acquisitions fail to increase shareholder value or improve performance. The acquiring and acquired firms are often culturally incompatible and so the businesses cannot be effectively integrated. Sometimes there is an exodus of talent from the acquired company. Sometimes the acquiring business borrows too much to pay for the acquisition which leaves the company with financial problems. In extremis, the internal disruption and diversion of management time caused by acquisitions or mergers could result in a loss of customer focus, a loss of sales and a loss of revenue.
“Beware the Ides of March”: Caesar should have heeded the Soothsayer’s warning; and more owners, managers and directors should think twice before embarking upon M&A adventures.