Mergers and acquisitions are the bread and butter of business case studies and lectures, not to mention a feeding trough for academic research. And what all that research shows is that the success rate for corporate mergers is dismal. The best estimate is that only half of corporate M&A deals are successful – success being measured by shareholder returns and the extent to which the institutions achieved their stated goals.
If most business school professors know this, why are so many of them cheerleading their business schools into merger talks? Do business schools believe they will succeed where other institutions do not?
Merger mania in recent years has been most acute in France, where the evidence suggests there will be many more mergers in the next few years. Indeed, Jean Charroin, vice-dean at Audencia Nantes, predicts that of the 40 Grande Ecole business schools in France, 10 will disappear through mergers in the next 10 years, if they do not just close down altogether.
There is the rub. As French schools see all sources of public funding dry up, including that from the chambers of commerce, the traditional sponsors of business schools, schools are slowly going broke. Mergers for most of them are about survival.
Is this a good basis for an alliance? I turned to Scott Moeller, director of the M&A Research Centre at Cass Business School in London. He says there are a few “truisms” in M&A: one is that in the corporate world, putting two failing institutions together does not make a successful one, and that it is very difficult to succeed even when combining a successful institution with one that is failing.
So not a lot of good news there, either for the French business schools or for a couple of high-profile international mergers now about to happen.
The first stems from an alliance between Ashridge in the UK and Hult, which has multiple global campuses but is headquartered in the US. The second is a merger of Thunderbird and its local Arizona State University. The clear message emanating from both proposed mergers is that in each case one partner – Ashridge and Thunderbird respectively – appears strapped for cash.
Prof Moeller points out that domestic deals have a higher success rate than cross-border deals, which should give some comfort to Thunderbird and ASU, but are there genuine synergies between the schools?
The logic is much easier to see with the proposed merger of Hult and Ashridge. Hult has a global network of largely younger students while Ashridge provides high-end executive education for senior managers. Ashridge needs the money and the security of a predictable income stream – executive education is notorious for its unpredictability. But Hult needs the reputation, accreditation and highly qualified full-time professors that Ashridge can throw into the pot.
True, both schools have a full-time MBA, but Ashridge’s attracts senior managers and is not dissimilar to the Sloan masters programmes at London Business School and MIT Sloan. The latter are clearly differentiated from those two schools’ MBA. ASU’s Carey school and Thunderbird both have MBAs too, but there the water is much muddier. What should stay and what should go?
Being clear about what should be jettisoned, and following this through, is a necessity for a successful corporate merger, says Prof Moeller. In business schools, where the most expensive assets are the tenured faculty, this is not as easy as it sounds. At Thunderbird a third of the professors and staff may have to quit, including tenured professors.
Getting rid of professors is a strategy fraught with difficulty. As many a dean can attest to his or her cost, the first professors to leave when the strategy is articulated are those with the reputation to command tenure elsewhere – the professors the institution wants to retain.
Prof Moeller’s co-author of Intelligent M&A, Chris Brady, raises another point: corporate lawyers and board directors focus long and hard on the details and legalities of a merger, but pay little heed to how the merger will be managed day-to-day. How will the executive coaches at Ashridge get on with the teaching staff at Hult? How will the culture in a state university such as ASU work with that of a private institution such as Thunderbird?
If the protagonists can work out such challenges, there may be good news at the end of the tunnel, says Prof Moeller. He cites the examples of Anglo American, GlaxoSmithKline, BP and Centrica as companies that have become truly global players through the deals they made. When deals do succeed, he says, they often do so resoundingly.