The 1990s 'urge to merge' has created a huge hangover of unfinished business

John Kelly KPMG

More than 30% of the most high-profile cross-border tie-ups agreed between 1996 and 1998 are being dismantled, while two-thirds have yet to be fully integrated, according to a new report from KPMG Consulting.

The latest report follows up on an earlier KPMG study which found that most of the 500 biggest takeovers during the period had in fact reduced the share price of the companies concerned in the short term.

KPMG's latest findings cast fresh doubt over whether acquisitions create value for investors even in the long term.

Downturn disruption

The report cites recent disposals of earlier acquisitions by, amongst others, British Telecom, engineering group Invensys and US conglomerate Tyco International.

It also reveals that about a third of the executives involved in putting together the deals have since moved on to other jobs.

The corporate U-turn on acquisitions has been prompted in part by the economic downturn, which has put companies under pressure to cut investment and get rid of underperforming subsidiaries.

"The 1990s 'urge to merge' has created a huge hangover of unfinished business," said John Kelly, head of merger and acquisition integration at KPMG Consulting.

Merger mania swept corporate boardrooms in the mid to late 1990s as executives across all sectors decided that growth through acquisition was the best way of building up the scale needed to compete in a globalised market place.

Easy money

With investors taking the same view, companies found it relatively easy to raise the cash needed to fund takeovers or mergers.

While some proposed tie-ups were blocked by competition regulators, many others went ahead.

The most prominent alliances of the period included Vodafone's takeover of German telecoms giant Mannesmann, and Glaxo Wellcome's merger with SmithKline Beecham, both finalised in 2000.

But global merger and acquisition activity has now slumped to a 10-year low, with business leaders gripped by a new mood of caution.