Manufacturers rank people issues as #1 mergers & acquisitions challenge

In this special issue of the Manufacturing Barometer, PwC asked our panel of industrial manufacturers what factors contribute to a successful deal and what their plans are for M&A(mergers and acquisitions) through 2007.  For M&A, senior executives say their ability to address people issues and the integration work after the deal are the two most important factors for success. Eighty-four percent of respondents ranked people issues as extremely or veryimportant, while integration was seen as a top priority by 80 percent of those surveyed. This implies that companiesview post-merger organizational, employment and communication issues as a priority to be addressed throughout the transition.

Pre-merger activities are also an important challenge. Seventy-four percent of respondents ranked financial due diligence as the third most important factor, followed closely by getting sound strategic advice during the M&A screening process (72 percent).

In a marked change from previous surveys, senior executives ranked Sarbanes-Oxley compliance at newly acquired entities as a lower concern. Sixty-six percent of respondents listed it as only somewhat important or not important, while 21 percent ranked it as extremely or very important. The results indicate companies are more comfortable with the regulation and less concerned about entity-level controls.

Other areas considered less important are the structuring of working capital adjustments and preparing for adivestiture, as noted by 44 percent of respondents.  Addressing accounting and SEC issues that arise during a transaction was cited by 38 percent. Depending on how the current credit market story unfolds, and as most of thecountry begins to prepare for seasonal energy needs,managing working capital adjustments may rise closer to the top of the priority list in the months to come and change the picture we see in the data today.

Fifty-six percent of manufacturers reported involvement in M&A activity and related transactions during 2006 (e.g.,joint ventures, alliances). Although the credit market is different today than it was at the time of the interviews, 64 percent expected to participate in similar or related activity by the end of 2007.

Responses also showed a growing interest in foreign markets. Twenty-six percent of respondents reported plans for M&A in Asia and 13 percent in Latin America - both sizeable jumps from 2006. Plans for deals in Europe show little change from 2006, with only a 2 point increase to 15 percent.