The spate of major mergers and acquisitions (M&A) in October and November is somewhat deceptive. It has actually been a tough year for buying, selling and merging businesses.

Although October was the largest month for global M&A volume this year (up 30 percent from September, totaling $451.5 billion for the month), the volume of middle-market deals (enterprise values of $30 million to $300 million) fell 22 percent from its year-ago period in North America and 20 percent in Europe. (Sources: Global M&A GmbH and Dealogic)

A survey released in September indicates that these types of deals could carry significant financial implications due to cultural misunderstandings between organizations.

According to consultancy firm Mercer's Cultural Integration Snapshot Survey, nearly 60 percent of the 119 survey respondents reported that the success of recent M&A transactions was impacted negatively by issues relating to organization culture. Asked to estimate the financial impact of cultural integration issues, respondents differed only slightly between the American and European surveys.

Of Mercer's findings, IndustryWeek reports:

In the American survey, 44 percent of respondents reported that between $1 million and $5 million was lost or not realized in a significant transaction their organization had recently undertaken, with nearly one-quarter estimating that it was over $5 million. In the European survey, 43 percent of respondents reported that between €1 million and €5 million was lost or not realized in a recent significant transaction, with nearly 30 percent estimating that it was over €5 million.

"We are working with one organization that estimated that its failure to quickly manage conflicting cultures early on 'cost' them hundreds of millions of dollars of lost revenue over a three year period," Elisa Hukins, the leader for cultural integration in Mercer's M&A global consulting business, said in a statement.

But cultural misunderstandings between two organizations, even if both are based in the same country, are not the only factor that have been hindering M&As of late. In fact, given the strain of the current credit crisis, companies can only hope to be in a situation of cultural misunderstanding if they want a successful M&A.

According to data compiled by Bloomberg News, the pace of mergers and acquisitions declined a staggering 28 percent this year as the credit crisis blocked companies' ability to fund deals. Because of volatile debt and equity markets, it's been difficult for companies to raise capital. Without access to funding, companies can no longer pursue targets.

"The M&A market is all but frozen while politicians around the world grapple with the economic crisis," Simon Collins, head of corporate finance at KPMG, told Bloomberg last month. "With the debt market virtually inaccessible, deal paralysis has also spread into sectors such as energy, which were until recently considered resilient to the world's economic woes."

Bloomberg News notes that Xstrata Plc scrapped its £5 billion ($8.8 billion) hostile bid for Lonmin Plc, the world's third-largest platinum producer on Oct. 1, "blaming 'extreme' turmoil in financial markets and concern over financing for the deal for the collapse."

On its own, the economic slump is having an impact on potential M&As. Just last week, two aluminum smelters were forced to cancel their planned merger due to slack demand for secondary aluminum alloys, including orders from foundries and diecasters. That decision has led one of the companies to idle production indefinitely.

With so many factors at stake, how can companies weather the M&A storm amidst the extraordinary credit crisis and cultural integration issues?

Resources

October Witnessed 'See-Saw' in Global M&A Deals: Report
Business Standard, Nov. 4, 2008

Northwest and Delta Join At Last
Outsourced Logistics, Nov. 6, 2008

GM-Chrysler: Stuck in Neutral
by Chris Isidore
CNNMoney.com, Oct. 22, 2008

Chrysler LLC Statement from Bob Nardelli, Chairman and CEO
Chrysler.com, Nov. 7, 2008

Millions in Value Lost in M&A Deals Due to Cultural Integration Issues
Mercer, Sept. 29, 2008

Millions Lost in M&A Deals Due to Cultural Integration Issues
by Adrienne Selko
IndustryWeek, Oct. 1, 2008

Mergers and Acquisitions `Frozen' Amid Credit Market Turmoil
by Ambereen Choudhury and Elisa Martinuzzi
Bloomberg News, Oct. 2, 2008

Millions Lost in M&A Deals Due to Cultural Misunderstanding (registration required)
Thomson Merger News, Oct. 3, 2008

The Cross-Border M&A Reporter
Global M&A GmbH, May 2008

Economic Slump Claims Merger Plans, Ark. Plant
by Peggy Harris
The Associated Press, Nov. 6, 2008