By Jane Han
Staff Reporter
Two companies merge, hoping for a more powerful business. But too many times what's meant to be a strategic combination ends up in failure because these giant deals are missing a vital link to success, says an M&A director at Hay Group.
``A balance in human capital between the two companies is a must because a cooperative organization powers a business to its target,'' David Derain, who leads the M&A work in the global management consultancy, said in a Korea Times interview Wednesday.
He said that a fragmented organization can lead business leaders to make uninformed decisions due to difficulties in obtaining necessary data.
Hay Group's recent survey showed that nine out of 10 corporations feel that their merger ultimately failed to deliver expected results. And two-thirds said that there remains a notable difference in culture and commitment levels between the two bodies.
``We can learn from those who went through the process and experienced such problems,'' said Derain, adding that the South Korean market is starting to speak up in cross-border and domestic M&As.
The 2007 M&A transaction volume in Korea stood at $74 billion, but he said the figure is expected to double in two to three years.
``Korea is behind in terms of merger deals,'' said the expert, who mostly covers the European market. ``Usually in advanced economies, cross-company deals grow proportionally to the country's GDP (gross domestic product).''
He said Koreans are comparatively more hostile toward mergers because they've seen employers break promises too often.
``The trust broke,'' said Derain, adding that many also went through a more negative experience during and after the 1997 Asian financial crisis, when foreign firms came in ``wanting to change everything.''
Looking at recent history, he said European executives seemed more successful in integrating themselves here than Americans, probably because the two cultures share more similarities.
Employers must ensure that workers don't feel they're losing after the merger because that is their biggest concern, not whether shareholders get more returns, he said.
Derain highlighted Chohung-Shinhan Banks' merger as one of the local success stories.
``There were some employee struggles at first but all in all, decision-makers did a lot of work before the merger so they could negotiate better with the labor union,'' he said, exemplifying the Pfizer-Pharmacia deal as a global success.
The M&A specialist said timing is important, explaining that a company has six months after a deal to address urgent matters, 18 months for stabilization and 36-48 months for acculturation.
``During this process, superfluous communication is good communication,'' he said, advising that employers must keep their people informed.