In the fanfare of M&A announcements, executives talk enthusiastically about lucrative new markets, multi-million-pound cost synergies and rapid profit growth. However, the much-vaunted benefits of corporate deals don’t always materialise.
GVA’s split from facilities management firm Apleona is a reminder of this. The two businesses were brought together under previous owner Bilfinger, which said at the time of its acquisition of GVA in 2014 that the UK firm’s brokerage services would offer “huge value” to the clients of its facilities management business and promised that the combination would “transform GVA’s drive for major growth”.
The fact that the new owners EQT are now separating the two businesses suggests that combining them was not such a great idea after all. Indeed, chief executive Gerry Hughes suggests the opposite – by saying the split would give GVA “greater momentum and no distractions”.
Countrywide is another case in point. The business has grown rapidly through M&A but in the race for growth failed to foresee how its business would be affected by the rise of online agents and the slowdown in the housing market.
This week, chief executive Alison Pratt quit after a string of profit warnings that have wiped hundreds of millions of pounds off the value of the company. Her successor will have the unenviable task of managing a portfolio of more than 50 high-street estate agent brands with hundreds of offices across the UK, as well as its commercial agency Lambert Smith Hampton, which is now one of the only parts of the business still delivering growth.
Decidely mixed picture
These are not isolated examples. Academic research paints a decidedly mixed picture of the impact of M&A activity on shareholder value and some studies have even suggested that the majority of deals destroy value.
M&A is especially problematic in real estate because there aren’t the obvious cost synergies that deals in other sectors like manufacturing offer up. In the agency world, firms also risk losing some of their best people and biggest fee-earners if they don’t manage the integration of teams very carefully. Chris Ireland aside, how many King Sturge equity partners are left at JLL?
As for the investment world, the jury is out on the two mammoth M&A deals agreed at the end of last year – Hammerson’s acquisition of Intu and Unibail-Rodamco’s purchase of Westfield. Analysts were particularly sceptical about the Hammerson/Intu deal, with Jefferies analyst Mike Prew calling it “a coalition of weak business models”.
A look at the trajectory of Hammerson’s share price over the past month suggests its investors are also far from convinced about the benefits of buying a company whose woes resulted in it dropping out of the FTSE 100 last year.
M&A always pays for the investment bankers who put deals together – but for the companies doing the acquiring and their investors, bigger doesn’t always mean better.