Study Says Many Merger Deals in Germany a Dud

"Every second transaction is value-destroying -- only about every third transaction leads to a considerable value increase for the company," said Joachim Spill, partner at Ernst & Young and co-director of transaction advisory services.

With mergers and acquisitions in Germany amounting to 113 billions euros ($144.7 billion) last year alone, the stakes are high.

Deals like BMW's short-lived ownership of British car manufacturer Rover and the less than prosperous merger between Daimler and Chrysler come to mind.

In the financial sector, the insurance company Allianz purchased Dresdner Bank five years ago, a transaction that cost 24 billion euros and brought additional nine-figure losses.

Poor management, little prep

In the study, Ernst & Young analyzed 189 transactions over 14 years. They also surveyed 147 companies and 53 shareholders and experts to get to the heart of the issue: What's the reason for the low success rate?

A vast majority -- 85 percent -- of those questioned said poor management was a major factor in the failed merger or acquisition. Poor preparation was mentioned by 69 percent.

"A corporate transaction doesn't happen by itself," said Samy Walleyo, a partner at Ernst & Young.

An important first step in ensuring the success of a merger or acquisition is selecting the object, but over half of those in the study attributed their company's failed deal to an inadequate acquisition strategy.

In other words, some companies had been enchanted by the size of a particular object, though it may not have been the best choice.

What's more, few companies apparently seek outside help when planning and carrying out a transaction, despite the intricacy of blending two corporate cultures.

Most go it alone

"Most companies try to manage the integration by themselves, although they know that there are pitfalls and they don't have much experience in this area," Spill said.

Only 27 percent of the companies in the study would call in an external consultant for tax assistance, and even fewer -- 22 percent -- would seek outside help in the area of finance and accounting.

"Many companies underestimate the risks and difficulties associated in a transaction and in managing the subsequent integration process," Walleyo said.

Merger trend picking up speed

Despite the risks involved, 74 percent of those surveyed said they believe the transaction market will continue to develop in the next two years and that the number of mergers and acquisitions will sharply increase.

Spill agreed.

"The merger and acquisition carousel is spinner faster and faster, especially in the energy, steel and pharmaceutical sectors," he said.

Nevertheless, the risk of a dud deal in Germany is still lower than in Anglo-Saxon countries, according to Spiegel Online, where the merger and acquisition failure rate is at a whopping 77 percent.