transparancy, fusion

The deception of mergers

Minister Plasterk still remains fully committed to the merger of provinces. Obsessed with the potential savings, he is totally blinded to the harsh realities of mergers that in almost all cases lead to deception.

Just as business buzzes continuously in mergers, especially in bad economic times, the [semi] government is also on the war path. Not only the mergers of the provinces are in the pipeline. The AMC and Vumc also have merger plans to realize a huge medical center. There are even plans to merge the universities of Delft, Leiden and Rotterdam into a super university.


The arguments for mergers are repeated over and over again. Efficiency, better customer focus, more innovation through more available capital. Better armed against the competition. Beautiful statements that are often supported with beautiful presentations.

However, the economic evidence for the success of mergers is wafer-thin. In almost all cases, mergers fail. Hans Schenk, professor at Tilburg and Rotterdam universities, and Louis Pasteur University in Strasbourg, wrote a study on mergers in 1996 that provides a sobering picture of the results of mergers and acquisitions.

American research into 6,000 mergers leads to the conclusion that “on average, the profitability of the partners decreased after the acquisition compared to the situation before that.” Only the rare pure mergers between two equal parties resulted in ‘a slight increase in profitability’.


Research focused on European countries shows that no consistent pattern can be observed when it comes to profitability. And research on German companies shows that the profitability on both the invested and the equity of the acquiring company decreased significantly after the merger or acquisition. ‘

The failed mergers are impressive: Fokker probably worn out most of the merger and acquisition partners: VFW, McDonnell Douglas and Dasa were biting the Dutch partner piece.The merger samples Ogem and RSV completely went under in the early eighties. KPN and TNT is also a completely failed story. But where does this urge to merge come from when many actually fail and there is little economic evidence of the claimed benefits?

It is not uncommon for directors to benefit from the mergers in various ways. It is the way for directors to profile themselves. On the golf course, that is a better topic of conversation than your disappointing results. Also financially, directors often benefit from the merger. Often the directors of the acquiree receive significant financial incentives. Often it is also business and market blindness. Overconfident, driven by merger experts, the director is prompted to make a statement in the business.


It is also striking that many mergers take place in markets where there is oligopoly formation. Changes in the market relationship through mergers are immediately visible and tangible. A merger directly leads to elimination of competition, which means that the acquiring party can suddenly acquire a dominant role. It is remarkable that the AFM often participates in this type of merger, because it leads to a significant reduction in the acclaimed market forces. The health insurance sector is a good example of this. They barely get in each other’s way.

The same debacle threatens for Minister Plasterk. The praised benefits of mergers are barely realizable. Only if there is a pure synergy, 2 companies that fit together seamlessly, may there be an advantage. Targeted efficiency is rare. The differences between organizations, often at the lower levels, nullify any pre-booked benefit. The customer focus is deteriorating in almost all cases due to the increasing complexity of the organization agv. the increase in scale. And in many cases the ICT turns out not to be as compatible as one had previously thought.

And if it turns out afterwards that the merger has failed, then there is suddenly a collective failure of the organizations, as is always said in the private sector. Regret policy will not be encountered after merger dramas. In that regard, Keynes was right: “Worldly wisdom teaches that for a reputation it is better to fail conventionally than to succeed unconventionally.”

Volkskrant economie
Economisch nieuws