The 7 merger types -- and why none of them work

contempt the growth volume of survey purporting to show that most M&A deals fail to create shareholder value, companies seem unable to resist the urge to merge. It's all too easy to succumb to the allurement of an seemingly game-changing deal. A new study from A.T. Kearney offers penetration that might make the most gung-ho growth strategian flinch, but also suggests ways that companies bent on acquisitions can addition their chances of success.

The consulting firm analyzed 175 deals to create the followers taxonomy of mergers:

1. Volume extension. Horizontal integrating of directly competitors to addition market share and achieve economies of scale.

2. Regional extension. Integrations of companies in the same industry, but different geographies.

3. merchandise extension. Combinations of non-competitors that serve the same client, but with different products and services.

4. Competency extension. Mergers in which the goal is to entree key selling, distribution, or R&D plus to strengthen core competence.

5. Forward extension. Vertical integrating of downriver customers or seller to acquire additional marketplace segments, transmission channel, and, possibly, end client.

6. Backward extension. Vertical integrating of upriver suppliers, for illustration to precaution resources.

7. concern extension. Mergers between unrelated organizations to diversify business, reduce risk, or transportation skills.

The first four types encompassed more than 97 percentage of the total sample.

A.T. Kearney used three metric function to gauge overall merger public presentation: change in tax return on sales (ROS), alteration in sales growing, and alteration in EBIT growing. ROS growing edged up an unimpressive 0.3 percent on norm. But norm sales growing slowed 6 percentage. All seven types of mergers failed to make money; EBIT growing decelerated by more than 9 percentage on norm.

In add-on, shareholder value, as measured by marketplace capitalization, declined 2.5 percent overall.

Why the disappointing results? The anticipated synergies often turn out to be illusory because of unforeseen costs and complexities, the study notes. Sales growth may slow because focusing on cost synergies pulls companies' attention away from markets and customers.

But the main cause of post-merger financial slowdowns, A.T. Kearney argues, is simply that companies treat all mergers alike. To have a better chance of beating the odds, companies should carefully assess the risks and opportunities specific to each merger type. For example, regional extensions often run aground on the cultural conflicts and operational complexities associated with cross-border deals.

Other tips for achieving a successful merger:

• Sequence integration activities. Growth- and market-related activities should sometimes take precedence over cost synergies.

• Integrate select parts of the value chain. Operational and administrative functions are often good candidates for integration, but it may be wise to leave some functions -- sales and marketing, for example -- alone.

• Adapt integration speed. Full-scale restructurings may take several years. And faster is not necessarily better.

Read the complete A.T. Kearney study "All Mergers Are Not Alike: Seven Merger Types and Approaches to Master the Integration" here.