It is often wrongly assumed that all the projected synergies of a merger or acquisition will be successfully allocated to the shareholders. Practice, however, is too often disappointing, and the expected increase in value simply does not materialise. What might explain this loss of value during the M&A process?

Focusing on the post-merger integration phase, this paper analyses the reasons for this value leakage and suggests possible remedies. Shareholder value is attacked from two sides. Potential gains are reduced by the rent-seeking actions of internal stakeholders – managers and employees – seeking to improve or defend their position. Costs are increased as a result of a reduction or reallocation of effort during the post-merger integration process, when uncertainty and dismay undermines staff belief and, with the integration process (and politicking) absorbing much management effort, the firm’s focus is internal rather than on the customer and the market environment.

The author outlines a number of practical remedies organisations can take to resolve each of these leakages, but notes how a remedy that may resolve value leakages in one area may at the same time have adverse affects on the problem in other areas. The challenge for managers is identified as finding the best way to manage these trade-offs.

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