Over time, mergers and acquisitions have become an integral part of the mining landscape. Lately, the relatively small number of low-risk greenfield opportunities is driving investor interest in brownfield acquisitions. With a merger or acquisition offering the potential to regenerate growth, revitalise profit, mitigate risk or develop a new market penetration, the prospect is tempting, particularly when volatile market conditions challenge investors to consider ways to secure growth.
Some research, however, suggests that, across all sectors, as many as 60% of mergers and acquisitions fail to deliver on expected outcomes, not least because the transactions are fraught with innumerable regulatory, financial and operational hurdles.
The research serves as a salutary reminder that the mining industry is equally affected by these obstacles.
Hostile takeovers aside, mergers and acquisitions can be the injection of lifeblood which doesn’t merely resuscitate a flagging business but revitalises it. Avoiding failure is about preparedness, due diligence and recognising the importance of both the pre- and post-merger phases as critical to the chances of success.
The immediate financial driver often results in overpayment or price dispute – damaging to post-merger relationships. However, while focussing on price efficiency and post-merger integration is essential and a critical factor, poor consideration of other issues, on behalf of both purchaser and seller, can also thwart the success of a deal.
Poor scrutiny of geological value of the target assets, geo-location of the mine, lack of transparency over potential conflict of interest, liabilities, indemnities, insurance will have obvious consequences. But failure to undertake effective pre-and post-deal due diligence on seemingly minor considerations can undermine the process. Something seemingly trivial, like the timing of the deal announcement, demands equal attention to the big-ticket items.
Aligned to a strategic plan, careful analysis of these factors can considerably increase the likelihood of success in a merger/acquisition.
If knowledge is power, then being in possession of all the pertinent information equips both buyer and seller to make deals with an informed sense of certainty. A willingness to engage a knowledgeable and objective consultant imbues the process with a sense of rigour and honesty, essential values in sustaining positive working relationships between parties.