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Chronicles from a Caribbean Cubicle

8/01/2006

A Call for More Mergers and Acquisitions

Recently, Ambassador Richard Bernal made a call for more merger and acquisition (M&A) activity within the CARICOM region.

I hope no-one takes his advice too seriously.

Essentially, his argument reported in an article by Sir Ronald Saunders in Caribbean360.com, is that bigger is better. His concern was that the relatively small companies in the region are likely to be pulverized by the mega-multinationals, and he compares regional banks such as RBTT and FirstCaribbean Bank to Citibank as an example of institutions that we think are large, but in fact are quite small -- their relative size being a weakness to be corrected.

I think Dr. Bernal's premise is faulty to begin with, but I plan to address that in a future blog.

My concern is what will happen if companies across the region take his advice seriously.

Our in-house research cites numerous articles that show that some 60-80% of M&A's produce no new value for their shareholders. That is, they fail.

Further primary research, available in the form of a white paper entitled Filling the Gap --The Caribbean Acquisition Report, shows that regional companies routinely underestimate the difficulty of the cultural differences, and have not figured out a way to create a single culture that is known by customers and the public as different or distinct.

Given these challenges, if shareholders were to heed his advice and were to begin calling for M&A's to ward off external competition, my fear is that a dramatic loss of shareholder value would be the likely result. While it would make for good business for consulting firms like ours, which have a focus on interventions in M&A's, we think that most would fail. After all, why should our efforts be more successful than the international averages? Many of these massive failures in shareholder value occurred to te mega companies such as TimeWarner and DaimlerChrysler of which Ambassador Bernal seems to be so fond.

While I share his concern, I think the prescription would end up killing the patient if the medicine were actually to be taken.

Disclaimer: I have not actually read his original paper, and am trusting that Caribbean360.com's account (carried in several newspapers) is accurate.

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