An M&A Perspective : Business Case vs. Implementation Costs

Cameron-and-SalmondWith politicians of all sides hitting the headlines by making statements based on “hard facts” that support or undermine the case for Scottish independence, and as an unbiased and by definition neutral Swiss observer and specialist in post-merger integration and carve-outs, I believe people would take another look at what Mr Alex Salmond proposes to do if they considered the complexity of the carve-out operation rather than focusing solely on the uncertain merits of the final outcome.

This puts the spotlight on the implementation costs, rather than just the business case.

Highlighting the cost and effort of such a massive carve-out would undoubtedly attract the attention of citizens in the rest of the United Kingdom, most of whom are today mere bystanders of what they regard as a purely Scottish matter.

Visions of a Hypothetical Future vs. Shorter Term Reality

Whereas the balance between the benefits and pitfalls of independence will vary depending on the scenario one lays out for the longer term future (evolution of the population pyramid, immigration flows, revenues from natural resources and general economic trends), I believe there needs to be more discussion regarding the effort and costs involved in disentangling the economies of Scotland and the rest of the Kingdom.  Experts’ assessments of that cost may vary quite widely as a result of personal bias, but these are costs that would be incurred in the next few years, their estimates are likely to be more tangible and accurate than those of the benefits case for Scottish independence which considers a time-span stretching over several decades.  Either way, those implementation costs  likely to be huge.

Without engaging in the debate on the merits of having autonomous administrations to run operations as complex as a state Treasury, Transport, Defence or Education Department, or  Nationalised Health Service, setting up those services and reallocating their present resources between Scotland and the other parties will be a massive task.  The N.H.S. is already a beehive of consultants and advisors nowadays, there’s a good pipeline of work for them in the years ahead if the Scots vote for their independence.

For Richer for Poorer …

Money is not everything, some will say.  Indeed when Czechoslovakia split in July 1992 to form the Czech Republic and Slovakia, it was clearly the Slovakian politicians that had pressed for secession, in spite of the fact that GDP per capita in Slovakia was 20% lower than that enjoyed by the Czechs.

Some Scottish voters might be inspired by the example of Czechoslovakia, and feel happier in a world in which they can “do their own thing”, regardless of the conflicting and sometimes tenuous arguments about the economic consequences of the separation.  However, the Czechs and Slovaks were only united since 1917, and Slovakia broke off a fist time 22 years later, only to be reunited under Soviet domination.  Unlike Britain in which England and Scotland were able to interweave their respective institutions and grow their infrastructure together over the past 310 years, History did not give the Czechs and Slovaks enough time to blend, leaving a clear “dotted line” along which those two states could easily secede and go their respective ways.

All the Effort and No Say in the Decision

Not much has been said so far about what will happen to the hundreds of companies that employ staff and have offices on both sides of the border if Scotland becomes a stand-alone state.  Many of them will need to register new legal entities to be able to employ staff in both countries, as a result of which there will be a duplication all of their systems and reporting processes, be it for payroll, tax, VAT, national insurance, pension funds etc.  So the burden of a secession will impact not only administrations and civil servants (and benefit consultants), but it will also hit many businesses and entrepreneurs across the country.

At a national level, this will add up to a huge complexity and cost for companies and people in England and Wales, who have no say in a decision which will impact them quite significantly.

Do you not agree this is rather odd and unfair ?