Bob Schneider is a Partner in 
Wilson So is the Director of Hitachi Consulting Corporation XBRL Will Play a Vital Role in M&A
Written by Bob Schneider Posted June 12, 2007
As recently reported in the Economist, some $2 trillion in global M&A deals have been unveiled thus far this year, a pace that points to a 60% rise for all of 2007 from 2006 levels. Strong equity markets, cheap debt financing, globalization of M&A, and lenient antitrust policy (especially in the US) are among the main factors fueling the huge expansion.
Like previous booms, the current frenzy has its own wrinkles most notably, a burst in private equity buyouts, which according to Mergermarket totaled $121 billion in the first quarter of 2007 compared with $58 billion a year earlier (for deals where the target firm was in the US and Canada). Also like previous spurts, there’s much speculation about a succeeding bust, with some averring that “This time really is different” and that the boom will continue, and others drawing up timetables for a bubble burst.
Opinion has long varied on M&A. Critics say many mergers are driven simply by fees and ego with little thought given to the new company that will emerge. Others argue that solid business reasons extending geographic and product markets, reducing overcapacity, enhancing R&D, and capitalizing on the convergence of industries and technologies underlie most M&A deals.
Similarly, views differ on whether most M&A ultimately does anybody much good (with undeniable exceptions, of course, like investment bankers, CEOs, and Ferrari salesmen). Past research studies of M&A have given rise to the belief that “most mergers fail,” and critics can easily point to unsuccessful combinations like Time-Warner and DaimlerChrysler to support their case. Other studies, however, show a more mixed picture, at least more recently, and M&A advisers cite evidence that stock prices of acquirers have actually gone up (at least for the first post-acquisition year).
Of course, given its current proportions, M&A is no more monolithic than the global economy, and success rates will vary depending on size, country, and circumstance. Certainly much M&A is part of the normal course of business enterprise. If recent history is any guide, M&A is likely only to get bigger. How can it also become better?
The widespread adoption of XBRL is one answer. First, interactive data can play a vital role in assuring better deals are made. As noted by CA.com:
In the scoping and due diligence phases of M&A activity, XBRL can be used as a uniform means to gather and compare information on target companies, allowing management to make better-informed decisions and project pro forma performance of the combined enterprise.
XBRL can be even more crucial in executing a completed deal. Chief information officers have often lamented that they are among the last to find out about a merger, yet the integration of IT systems is absolutely essential to a successful combination. Differences in data and account structures across organizations present huge challenges for consolidation. But CIOs are often under enormous pressure to combine IT quickly, as well as generate some of the cost savings that supposedly justified the merger.
The wide-scale implementation of XBRL would make their jobs much easier. In a recent article for Strategic Finance titled “The Global Ledger for Financial Services,” Gianluca Garbelotto noted the advantages of XBRL GL for M&A:
XBRL GL facilitates the consolidation of data and the migration from one information system to another, offering important additional advantages in the process in terms of standardization and ownership of the data independent from the applications in use, which is particularly important in a transition process.
Although Gianluca was speaking specifically about the plusses of XBRL for mergers in financial services, his comments can be applied to combinations in a wide variety of sectors.
Moreover, the international effort to adopt XBRL offers peculiar advantages for global M&A. The current round of mergers has seen burgeoning activity in formerly quiescent areas like the Middle East and Africa, and cross-border M&A is beginning to flow both ways between the so-called advanced and emerging economies. As an open, truly international data standard, wide-scale adoption of XBRL would make integrating cross-border mergers quicker and easier.
The vision I have outlined of XBRL in M&A is not immediately in view, because company IT is not yet widely based on interactive data. But the argument for adopting XBRL for migrating data across systems is powerful, and wide-scale implementation may well change how M&A is seen — even by CIOs.