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Experts caution Taiwanese firms over the dangers of mergers and acquisitions

Mergers and acquisitions (M&As) are common and natural progressions for firms looking to increase their competitiveness, but carrying out thorough studies, getting professional advice and consistent communication are the keys to successful merger cases, industry watchers said yesterday.

"Only one-third of proposed M&As are successfully concluded. The completion of the merger transaction is only the first step, as post-merger integration is more critical to seeing whether an enterprise keeps its newlyacquired operations running smoothly," said Jack Huang (黃日燦), a lawyer with Jones Day (眾達國際).

He made the remarks at a forum organized by Jones Day and the Mount Jade Science and Technology Association (玉山科技協會) yesterday.

Overseas expansion

Since currency regulations were relaxed by the government in 1987, Taiwanese firms have started to expand overseas through M&As and put more investment into sustaining competitiveness, he added.

According to Huang, investment from Taiwanese firms in China, for instance, has amounted to US$40 billion to date, with over US$20 billion recorded for the last three years alone.

"Though most firms lay out viable M&A strategies, what matters most is the precise execution and integration of both the entities. It is important to seek advice from international organizations, such as investment bankers to oversee the merger process," added Philip Peng (彭錦彬), president of ID SoftCapital Inc (智融).

ID SoftCapital is an investment venture established by Acer Inc founder Stan Shih (施振榮) in March this year and is entrusted with managing Acer's assets.

Citing Acer as an example, Peng said that its acquisition of the US-based minicomputer maker Altos Computer Systems was one unsuccessful case, as the merged entity posted losses of around NT$2 billion (US$ 59.5 million) for four consecutive years after the US$94 million deal was sealed in 1991.

"This was a failure because the integration of the two teams from different cultural backgrounds failed. But we learnt a valuable lesson from the mistakes and it didn't deter Acer, which is now the No. 1 notebook brand in Europe," said Peng, who was formerly Acer's chief financial officer.

Increase capability

Agreeing with Peng, Du Ying-tzung (杜英宗), chairman of Citigroup Global Markets Taiwan Ltd, said that firms nowadays should have their own M&A capability to prepare for unforeseen industrial circumstances, just as they have capabilities in research and development, distribution and low-cost manufacturing.

"Generally, Asian companies are not aware of how to integrate M&As into strategic planning and bring it up to execution level," he said.

To carry out successful M & As, companies should think from the basis of cost synergy instead of revenue synergy, as cutting costs to enhance existing strengths will be easier to achieve than boosting revenues, said Du, whose firm managed the merger of BenQ Corp (明基) and Siemens AG mobile devices unit this year and the merger between Yahoo and Kimo in 2000.
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